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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

For the fiscal year ended December 31, 2001
                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from                to
                               --------------    -------------

                           Commission File No. 0-18279

                        TRI-COUNTY FINANCIAL CORPORATION
                        --------------------------------
             (Exact name of registrant as specified in its charter)


            MARYLAND                                             52-1652138
-------------------------------                              -------------------
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                               Identification No.)


3035 LEONARDTOWN ROAD, WALDORF, MARYLAND                           20601
----------------------------------------                           ----------
(Address of principal executive offices)                           (Zip Code)

       Registrant's telephone number, including area code: (301) 645-5601

        Securities registered pursuant to Section 12(b) of the Act: NONE

           Securities registered pursuant to Section 12(g) of the Act:

                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                     --------------------------------------
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
by  Section  13 or 15(d)  of the  Securities  Exchange  Act of 1934  during  the
preceding 12 months (or such shorter  period that the registrant was required to
file such reports) and (2) has been subject to such filing  requirements for the
past 90 days. Yes  X   No
                  ---    ---

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Based on the  average of the high bid and low asked  prices  reported on the OTC
Bulletin Board ($28.875 per share),  the aggregate  market value of voting stock
held by non-affiliates of the registrant was $18.2 million as of March 15, 2002.
For  purposes  of this  calculation  only,  the  shares  held by  directors  and
executive officers of the registrant and by any stockholder  beneficially owning
more than 5% of the  registrant's  outstanding  common  stock  are  deemed to be
shares held by affiliates.

Number of shares of Common Stock outstanding as of March 15, 2002: 765,580

                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Portions of Proxy Statement for 2002 Annual Meeting of Stockholders.  (Part
     III)

================================================================================

<PAGE>

                                     PART I

ITEM 1.  BUSINESS
-----------------

Tri-County  Financial  Corporation  (the  "Company")  is a bank holding  company
organized in 1989 under the laws of the State of Maryland. It presently owns all
the outstanding shares of capital stock of the Community Bank of Tri-County (the
"Bank"), a Maryland-chartered commercial bank. The Bank was originally organized
in 1950 as Tri-County Building and Loan Association of Waldorf, a mutual savings
and loan association,  and in 1986 converted to a federal stock savings bank and
adopted the name  Tri-County  Federal  Savings  Bank.  The Bank  converted  to a
Maryland-chartered  commercial  bank and adopted its current  corporate title in
1997.  The Company  engages in no  significant  activity  other than holding the
stock of the Bank and  operating  the  business  of the Bank.  Accordingly,  the
information set forth in this report, including financial statements and related
data, relates primarily to the Bank and its subsidiaries.

The Bank serves the  southern  Maryland  counties  of  Charles,  Calvert and St.
Mary's  through its main office and eight  branches  located in Waldorf,  Bryans
Road, Dunkirk, Leonardtown, La Plata, Charlotte Hall, and California,  Maryland.
During  2001,  the  Bank  closed  a   micro-branch   and  opened  an  additional
full-service  branch.  The Bank also operates fourteen Automated Teller Machines
("ATMs") including six stand-alone locations in the Tri-County area. The Bank is
engaged in the  commercial  and retail  banking  business as  authorized  by the
banking  statutes of the State of Maryland and applicable  Federal  regulations,
including the  acceptance of demand and time  deposits,  and the  origination of
loans to individuals,  associations,  partnerships and corporations.  The Bank's
real estate financing  consists of residential  first and second mortgage loans,
home equity lines of credit and commercial  mortgage loans.  Commercial  lending
consists  of both  secured  and  unsecured  loans.  The Bank is a member  of the
Federal Reserve and Federal Home Loan Bank ("FHLB") Systems and its deposits are
insured up to applicable limits by Savings  Association  Insurance Fund ("SAIF")
of the Federal Deposit Insurance Corporation ("FDIC").

The Company's  executive offices are located at 3035 Leonardtown Road,  Waldorf,
Maryland.  Its telephone  number is (301)  645-5601.  The Bank also  maintains a
website at www.communitybktricounty.com.

MARKET AREA

The Bank  considers its principal  lending and deposit market area to consist of
the  Southern  Maryland  counties of  Charles,  Calvert  and St.  Mary's.  These
counties have experienced  significant  population growth during the past decade
due to their  proximity to the rapidly  growing  Washington,  D.C. and Baltimore
metropolitan  areas.  Southern  Maryland is  generally  considered  to have more
affordable  housing than many other  Washington and Baltimore  area suburbs.  In
addition,  the area has  experienced  rapid  growth in  businesses  and  federal
facilities  located in the area. Major federal  facilities  include the Patuxent
Naval Air  Station in St.  Mary's  county.  The  Patuxent  Naval Air Station has
undergone  significant  expansion in the last several  years and is projected to
continue to expand for several more years.

LENDING ACTIVITIES

GENERAL.  The Bank offers a wide variety of consumer and commercial  loans.  The
Bank's lending activities include  residential and commercial real estate loans,
construction loans, land acquisition and development loans, equipment financing,
and commercial and consumer  demand and  installment  loans.  Most of the Bank's
customers are residents of, or businesses located in the southern Maryland area.
The Bank's  primary  market for  commercial  loans  consists of small and medium
sized  businesses  located in southern  Maryland.  The Bank  believes  that this
market is  responsive  to the Bank's  ability to provide  personal  service  and
flexibility. The Bank attracts customers for its consumer lending products based
upon its ability to offer service, flexibility, and competitive pricing, as well
as  by  leveraging  other  banking  relationships  such  as  soliciting  deposit
customers for loans.

The Bank's  previous  savings and loan  charter  restricted  its ability to hold
certain loan types in its portfolio.  As a result,  prior to its conversion to a
state chartered commercial bank, the Bank's loan portfolio was primarily made up


                                       2
<PAGE>

of residential mortgage loans. Since conversion, the Bank has moved to diversify
its lending by adding a larger  portion of commercial  real estate,  commercial,
and  consumer   loans  to  its   portfolio.   Management   believes   that  this
diversification of the loan portfolio will increase the Bank's overall long-term
financial  performance.  Management  recognizes  that  these new loan  types may
increase the Bank's risk of losses due to loan default.

RESIDENTIAL  FIRST MORTGAGE LOANS.  Prior to its conversion to a commercial bank
on March 29,  1997,  residential  first  mortgages  made up the  majority of the
Bank's loan portfolio.  Since that date,  residential  first mortgage loans have
represented a progressively smaller portion of the Bank's loan portfolio.  Since
December 31, 1997,  residential  first  mortgage  loans have decreased in dollar
amount to $61.4 million from $61.6 million, while falling as a percentage of the
loan portfolio to 31.8% from 49.6%.

Residential first mortgage loans made by the Bank are generally long-term loans,
amortized on a monthly basis,  with  principal and interest due each month.  The
initial  contractual loan payment period for residential  loans typically ranges
from 10 to 30 years.  The Bank's  experience  indicates  that real estate  loans
remain  outstanding for  significantly  shorter  periods than their  contractual
terms. Borrowers may refinance or prepay loans at their option, without penalty.
The Bank originates both fixed- and adjustable-rate residential first mortgages.

The  Bank  emphasizes  the  origination  of  adjustable-rate  mortgages  for its
portfolio.  The Bank offers  mortgages which are adjustable on a one, three, and
five-year  basis  generally  with  limitations  on  upward  adjustments  of  two
percentage  points per year and six percentage points over the life of the loan.
The Bank markets adjustable-rate loans with rate adjustments based upon a United
States  Treasury bill index. As of December 31, 2001, the Bank had $28.9 million
in loans using a U.S.  Treasury bill index.  In the past,  the Bank also offered
adjustable-rate  mortgage loans based upon other indices  including various cost
of funds  indices.  These  adjustable  rate loans  totaled  $162  thousand as of
December 31, 2001. The Bank also offers long-term,  fixed-rate loans. Fixed-rate
loans may be packaged and sold in the secondary market, primarily to the Federal
Home Loan Mortgage Corporation ("FHLMC"),  private mortgage correspondents,  the
Federal  National  Mortgage  Association  ("FNMA") and the Mortgage  Partnership
Finance program of the FHLB of Atlanta, or are exchanged for FHLMC participation
certificates or FNMA mortgage-backed securities.  Depending on market conditions
the Bank may elect to retain the right to  service  the loans sold for a payment
based upon a percentage,  (generally  0.25% of the  outstanding  loan  balance).
These servicing rights may be sold to other qualified servicers.  As of December
31, 2001,  the Bank serviced  $68.3 million in  residential  mortgage  loans for
various organizations.

The retention of  adjustable-rate  mortgage  loans in the Bank's loan  portfolio
helps reduce the negative  effects of increases in interest  rates on the Bank's
net interest income. Under certain conditions,  however, the annual and lifetime
limitations  on interest  rate  adjustments  may limit the increases in interest
rates on these loans. There are also unquantifiable  credit risks resulting from
potential  increased  costs  to  the  borrower  as  a  result  of  repricing  of
adjustable-rate  mortgage loans. It is foreseeable that during periods of rising
interest  rates,  the risk of  default  on  adjustable-rate  mortgage  loans may
increase  due to the upward  adjustment  of interest  cost to the  borrower.  In
addition,   depending  on  market  conditions,  the  initial  interest  rate  on
adjustable-rate  loans is  generally  lower  than that on a  fixed-rate  loan of
similar credit quality and size.

The  Bank  makes  loans  up to 95% of  appraised  value  or  sales  price of the
property,  whichever is less, to qualified  owner-occupants upon the security of
single-family  homes.  Non-owner  occupied one- to  four-family  loans and loans
secured by other than  residential  real  estate are  generally  permitted  to a
maximum  70%  loan-to-value  of the  appraised  value  depending  on the overall
strength of the application.  The Bank currently requires that substantially all
residential  loans  with  loan-to-value  ratios in  excess of 80% carry  private
mortgage  insurance  to lower the Bank's  exposure to  approximately  80% of the
value of the property.

All  improved  real estate  which serves as security for a loan made by the Bank
must be insured,  in the amount and by such  companies as may be approved by the
Bank,  against  fire,  vandalism,  malicious  mischief and other  hazards.  Such
insurance  must be  maintained  through  the  entire  term of the loan and in an
amount not less than that amount  necessary  to pay the Bank's  indebtedness  in
full.

                                       3
<PAGE>

COMMERCIAL REAL ESTATE AND OTHER NON-RESIDENTIAL REAL ESTATE LOANS. The Bank has
increased  its emphasis on loans for the permanent  financing of commercial  and
other improved real estate  projects,  including,  to a limited  extent,  office
buildings,  as well as churches and other special purpose projects. As a result,
commercial  real estate loans  increased $23.4 million or 55.4% during 2001. The
primary  security on a commercial  real estate loan is the real property and the
leases which produce income for the real property.  Commercial real estate loans
amounted to approximately $65.6 million or 33.9% of the Bank's loan portfolio at
December 31, 2001. The Bank generally  limits its exposure to a single  borrower
to 15% of the Bank's capital and frequently  participates  with other lenders on
larger projects.  Loans secured by commercial real estate are generally  limited
to 80% of appraised  value and have an initial  contractual  loan payment period
ranging  from three to 20 years.  Virtually  all of the Bank's  commercial  real
estate loans, as well as its construction  loans discussed below, are secured by
real estate located in the Bank's primary market area.

Loans  secured by  commercial  real estate are larger and involve  greater risks
than one- to four-family  residential  mortgage loans. Because payments on loans
secured by such  properties are often  dependent on the successful  operation or
management  of the  properties,  repayment  of such  loans may be  subject  to a
greater  extent to adverse  conditions in the real estate market or the economy.
The  Bank   restricts  its   commercial   real  estate   lending   primarily  to
owner-occupied buildings which will, to some extent, be occupied by the borrower
as opposed to speculative  rental projects.  As a result of the greater emphasis
that the Bank places on commercial  real estate loans under its business plan as
a commercial  bank, the Bank is increasingly  exposed to the risks posed by this
type of lending.

CONSTRUCTION AND LAND DEVELOPMENT  LOANS. The Bank offers  construction loans to
individuals and building  contractors  primarily for the construction of one- to
four-family    dwellings.     Loans    to    individuals    primarily    consist
construction/permanent  loans which have fixed  rates,  payable  monthly for the
construction  period and are  followed by a 30-year,  fixed- or  adjustable-rate
permanent  loan. The  construction/permanent  loans provide for  disbursement of
loan funds based on draw requests  submitted by the builder during  construction
and site  inspections  by  independent  inspectors.  The Bank  will  also make a
construction  loan if the borrower has a  commitment  from another  lender for a
permanent loan at the completion of the construction. These loans typically have
terms of six months.  The application  process includes the same items which are
required for other  mortgage  loans and also  requires the borrower to submit to
the  Bank  accurate  plans,  specifications,  and  costs of the  property  to be
constructed. These items are used as a basis to determine the appraised value of
the subject property.

The Bank also provides  construction and land development loans to home building
and real estate development companies. Generally, these loans are secured by the
real  estate  under  construction  as well as by  guarantees  of the  principals
involved.  Draws are made upon satisfactory  completion of pre-defined stages of
construction  or  development.  The Bank  will  lend up to 80% of the  appraised
value.

The Bank  also  offers  builders  lines of  credit,  which are  revolving  notes
generally  secured  by real  property.  Outstanding  builders  lines  of  credit
amounted to  approximately  $7.8 million at December 31, 2001. The Bank offers a
builder's  master note program in which the builder receives a revolving line of
credit at a market  rate and the Bank  obtains  security  in the form of a first
lien on home sites under construction.

In  addition,  the  Bank  offers  loans  for  the  purpose  of  acquisition  and
development of land, as well as loans on  undeveloped,  subdivided lots for home
building by individuals.  Land  acquisition and development  loans,  included in
construction  loans discussed above,  totaled $3.6 million at December 31, 2001.
Bank policy  provides  that zoning and permits  must be in place prior to making
development loans.

The Bank's ability to originate all types of construction and development  loans
is  heavily  dependent  on  the  continued  demand  for  single  family  housing
construction  in the Bank's market areas. In the event the demand for new houses
in the Bank's  market  areas were to decline,  the Bank may be forced to shift a
portion of its lending emphasis. There can be no assurance of the Bank's ability
to continue growth and profitability in its construction  lending  activities in
the event of such a decline.

Construction  and land development  loans are inherently  riskier than providing
financing on owner occupied real estate. The Bank's risk of loss is dependent on
the  accuracy  of the  initial  estimate  of the market  value of the

                                       4
<PAGE>

completed project as well as the accuracy of the cost estimates made to complete
the project.  As these projects may take an extended period of time to complete,
market,  economic,  and regulatory conditions may change during the construction
or development period.

HOME EQUITY AND SECOND MORTGAGE  LOANS.  The Bank has maintained a growing level
of home equity and second  mortgage  loans in recent  years.  Home equity loans,
which totaled $13.1 million at December 31, 2001, are generally made in the form
of lines of credit with minimum amounts of $5,000, have terms of up to 20 years,
variable  rates priced at prime or some margin above prime and require an 80% or
90% loan-to-value  ratio (including any prior liens),  depending on the specific
loan program.  Second  mortgage loans which totaled $5.5 million at December 31,
2001 are  fixed-rate  loans which have  original  terms  between 5 and 15 years.
Loan-to-value  ratios of up to 80% or 90% are allowed  depending on the specific
loan program.

These  products  represent  a higher  risk of  default  than  residential  first
mortgages as in the event of  foreclosure,  the first  mortgage would need to be
paid off prior to collection of the second.  The Bank believes that its policies
and procedures are sufficient to mitigate the additional risk.

CONSUMER AND  COMMERCIAL  LOANS.  The Bank has developed a number of programs to
serve the needs of its customers with primary emphasis upon direct loans secured
by automobiles, boats, recreational vehicles and trucks and heavy equipment. The
Bank also makes home  improvement  loans and offers both  secured and  unsecured
lines of credit.

The Bank also offers a variety of commercial loan services including term loans,
lines of  credit  and  equipment  financing.  The  Bank's  commercial  loans are
primarily  underwritten  on the basis of the  borrower's  ability to service the
debt from income.  Such loans are generally made for terms of five years or less
at interest rates which adjust periodically.

The higher  interest  rates and shorter loan terms  available on commercial  and
consumer lending make these products attractive to the Bank. In particular,  the
consumer and commercial loan portfolio will increase its yield as interest rates
increase.  Consumer and commercial business loans, however,  entail greater risk
than  residential  mortgage  loans,  particularly  in the case of consumer loans
which  are  unsecured  or  secured  by  rapidly   depreciable   assets  such  as
automobiles.  In such  cases,  any  repossessed  collateral  may not  provide an
adequate source of repayment of the outstanding  loan balance as a result of the
greater  likelihood of damage,  loss or depreciation.  The remaining  deficiency
often does not  warrant  further  substantial  collection  efforts  against  the
borrower. In addition, consumer loan collections are dependent on the borrower's
continuing  financial  stability,  and  thus  are more  likely  to be  adversely
affected by job loss, divorce, illness or personal bankruptcy.  Furthermore, the
application  of various  Federal  and state  laws  including  Federal  and state
bankruptcy and  insolvency  laws, may limit the amount which can be recovered on
such loans.  Such loans may also give rise to claims and  defenses by a consumer
loan borrower  against an assignee such as the Bank,  and a borrower may be able
to assert  against such  assignee  claims and defenses  which it has against the
seller of the underlying collateral.

                                       5
<PAGE>

LOAN  PORTFOLIO  ANALYSIS.  Set forth  below is  selected  data  relating to the
composition of the Bank's loan portfolio by type of loan on the dates indicated.
<TABLE>
<CAPTION>
                                                                      AT DECEMBER 31,
                                            ----------------------------------------------------------------
                                                   2001                    2000                  1999
                                            -----------------        ---------------       -----------------
                                            AMOUNT        %          AMOUNT      %         AMOUNT        %
                                            ------      -----        ------    -----       ------      -----
                                                                  (DOLLARS IN THOUSANDS)
<S>                                         <C>          <C>        <C>        <C>        <C>          <C>
Real Estate Loans --
  Residential first mortgage .............  $  61,430    31.26%     $67,975    38.89%     $  66,263    44.42%
  Commercial .............................     65,617    33.39       42,226    24.16         29,947    20.08
  Construction and land development (1)...     18,136     9.23       17,301     9.90         17,142    11.49
  Home equity and second mortgage ........     18,580     9.46       18,637    10.66         16,691    11.19
Commercial loans..........................     18,539     9.44       15,047     8.61         10,025     6.72
Consumer loans............................     14,187     7.22       13,610     7.79          9,102     6.10
                                            ---------    -----    ---------    -----      ---------    -----
         Total loans......................    196,489   100.00%     174,796   100.00%       149,171   100.00%
                                                        ======                ======                  ======
   Less:  Deferred loan fees..............        757                   776                     808
             Loan loss reserve............      2,282                 1,930                   1,653
                                            ---------             ---------               ---------
        Loans receivable, net.............  $ 193,450              $172,090               $ 146,710
                                            =========              ========               =========

<CAPTION>
                                                           AT DECEMBER 31,
                                             -----------------------------------------
                                                   1998                    1997
                                              ------------------     -----------------
                                              AMOUNT         %       AMOUNT        %
                                              ------      ------     ------     ------
                                                       (DOLLARS IN THOUSANDS)
<S>                                          <C>          <C>      <C>         <C>
Real Estate Loans --
  Residential first mortgage .............   $ 64,243     47.55%   $ 61,630    49.61%
  Commercial .............................     19,733     14.60      19,201    15.46
  Construction and land development (1)...     20,776     15.38      14,707    11.84
  Home equity and second mortgage ........     16,314     12.07      17,428    14.03
Commercial loans..........................      6,161      4.56       4,852     3.91
Consumer loans............................      7,889      5.84       6,420     5.17
                                             --------     -----    --------    -----
         Total loans......................    135,117    100.00%    124,238   100.00%
                                                         ======               ======
   Less:  Deferred loan fees..............        930                 1,060
             Loan loss reserve............      1,540                 1,310
                                             --------              --------
        Loans receivable, net.............   $132,646              $121,867
                                             ========              ========
<FN>
----------
(1)  Presented net of loans in process.
</FN>
</TABLE>
                                       6
<PAGE>

LOAN  ORIGINATIONS,  PURCHASES AND SALES.  The Bank  solicits loan  applications
through its branch network,  direct  solicitation  of customers,  referrals from
customers,  and marketing by commercial and residential  mortgage loan officers.
Loans are processed and approved  according to guidelines deemed appropriate for
each product type. Loan  requirements  such as income  verification,  collateral
appraisal, credit reports, etc. vary by loan type. Loan processing functions are
generally  centralized  except for small consumer loans. Loan approval authority
is  established   by  Board  policy  and  delegated  as  deemed   necessary  and
appropriate.  Loan approval  authorities  vary by individual  with the President
having approval authority up to $750,000, Senior Vice Presidents up to $400,000,
and Business Development officers up to $150,000. Authorities may be combined up
to $1,000,000.  For residential mortgage loans, the residential loan underwriter
may approve loans up to the conforming  loan limit of $255,000.  Selected branch
personnel  may approve  secured loans up to $75,000,  and unsecured  loans up to
$50,000.  A loan  committee  consisting  of the President and two members of the
Board,  ratify all real  estate  mortgages  and  approve  all loans in excess of
$1,000,000. Depending on the loan and collateral type, conditions for protecting
the Bank's  collateral  are  specified in the loan  documents.  Typically  these
conditions  might include  requirements to maintain hazard and title  insurance,
pay property taxes, and other conditions.

Depending on market conditions,  mortgage loans may be originated primarily with
the intent to sell to third parties such as FNMA or FHLMC. During the year 2001,
the Bank sold $11.4 million of mortgage loans which were  originated  during the
year  generating  $187 thousand in income.  In order to comply with internal and
regulatory limits on loans to one borrower, the Bank routinely sells portions of
commercial  and  commercial  real estate loans to other  lenders.  The Bank also
routinely buys portions of loans,  whole loans,  or  participation  certificates
from other  lenders.  The Bank only  purchases  loans or portions of loans after
reviewing  loan  documents,   underwriting  support,  and  other  procedures  as
necessary.  Purchased  loans are  subject to the same  regulatory  and  internal
policy requirements as other loans in the Bank's portfolio.

LOANS TO ONE BORROWER.  Under Maryland law, the maximum amount which the Bank is
permitted to lend to any one borrower and their related  interests may generally
not exceed 10% of the Bank's unimpaired  capital and surplus which is defined to
include the Bank's capital,  surplus,  retained  earnings and 50% of its reserve
for  possible  loan  losses.  Under  this  authority,  the Bank  would have been
permitted  to lend up to $2.6  million to any one borrower at December 31, 2001.
By interpretive  ruling of the  Commissioner of Financial  Regulation,  Maryland
banks have the option of lending up to the amount that would be permissible  for
a  national  bank which is  generally  15% of  unimpaired  capital  and  surplus
(defined to include a bank's total capital for regulatory  capital purposes plus
any loan loss  allowances  not  included  in  regulatory  capital).  Under  this
formula,  the Bank would have been  permitted  to lend up to $4.2 million to any
one  borrower at December 31, 2001.  At December  31, 2001,  the largest  amount
outstanding to any one borrower and their related interests was $3.6 million.

LOAN COMMITMENTS.  The Bank does not normally negotiate standby  commitments for
the construction and purchase of real estate.  Conventional loan commitments are
granted  for a  one-month  period.  The total  amount of the Bank's  outstanding
commitments  to originate  loans at December 31, 2001,  was  approximately  $1.9
million,  excluding  undisbursed  portions of loans in process.  It has been the
Bank's experience that few commitments expire unfunded.

                                       7
<PAGE>

MATURITY OF LOAN PORTFOLIO.  The following table sets forth certain  information
at December 31, 2001 regarding the dollar amount of loans maturing in the Bank's
portfolio  based on their  contractual  terms to maturity.  Demand loans,  loans
having no stated schedule of repayments and no stated  maturity,  and overdrafts
are reported as due in one year or less.
<TABLE>
<CAPTION>
                                                          DUE AFTER 1        DUE MORE
                                      DUE WITHIN           THROUGH 5          THAN 5
                                     1 YEAR AFTER         YEARS FROM        YEARS FROM
                                       DECEMBER            DECEMBER          DECEMBER
                                       31, 2001            31, 2001          31, 2001            TOTAL
                                      ----------          ----------        ----------           -----
                                                        (IN THOUSANDS)
<S>                                    <C>                <C>               <C>               <C>
Real estate loans --
   Residential first mortgages......   $    6,632         $   21,989        $   32,809        $   61,430
   Commercial ......................        7,746             20,833            37,038            65,617
   Construction.....................       13,200              2,043             2,893            18,136
   Home equity and second
     mortgage.......................       13,127              3,488             1,965            18,580
Commercial loans....................       18,539                                                 18,539
Consumer loans......................        4,358              9,767                62            14,188
                                        ---------         ----------        ----------        ----------
                                       $   63,602         $   58,120        $   74,767        $  196,490
                                       ==========         ==========        ==========        ==========
</TABLE>

The next table sets forth the dollar amount of all loans due after one year from
December 31, 2001 which have predetermined interest rates and have floating or
adjustable interest rates.

<TABLE>
<CAPTION>
                                                                  FLOATING OR
                                            FIXED RATES         ADJUSTABLE RATES          TOTAL
                                            -----------         ----------------        ----------
                                                                (IN THOUSANDS)
<S>                                         <C>                 <C>                     <C>
          Real estate loans --
             Residential first mortgage...  $    25,360         $    29,438             $   54,798
             Commercial...................        2,878              54,993                 57,871
             Construction.................        1,305               3,631                  4,936
             Home equity and second
               mortgage...................        5,453                  --                  5,453
          Consumer........................        9,829                  --                  9,829
                                            -----------         -----------             ----------
                                            $    44,825         $    88,062             $  132,887
                                            ===========         ===========             ==========
</TABLE>
DELINQUENCIES.  The Bank's collection  procedures provide that when a loan is 15
days delinquent,  the borrower is contacted by mail and payment is requested. If
the  delinquency  continues,  subsequent  efforts  will be made to  contact  the
delinquent borrower and obtain payment. If these efforts prove unsuccessful, the
Bank  will  pursue  appropriate  legal  action  including  repossession  of  the
collateral and other actions as deemed necessary. In certain instances, the Bank
will attempt to modify the loan or grant a limited  moratorium  on loan payments
to enable the borrower to reorganize his financial affairs.

NON-PERFORMING ASSETS AND ASSET CLASSIFICATION.  Loans are reviewed on a regular
basis and are placed on a non-accrual status when, in the opinion of management,
the collection of additional  interest is doubtful.  Residential  mortgage loans
are placed on non-accrual status when either principal or interest is 90 days or
more  past due  unless  they are  adequately  secured  and  there is  reasonable
assurance of full collection of principal and interest. Consumer loans generally
are  charged  off when the loan  becomes  over 120 days  delinquent.  Commercial
business and real estate loans are placed on non-accrual status when the loan is
90 days or more past due or when the loan's  condition puts the timely repayment
of principal  and interest in doubt.  Interest  accrued and unpaid at the time a
loan is placed

                                       8
<PAGE>

on non-accrual  status is charged against interest income.  Subsequent  payments
are either applied to the outstanding  principal balance or recorded as interest
income, depending on the assessment of the ultimate collectibility of the loan.

Real estate  acquired by the Bank as a result of  foreclosure or by deed in lieu
of foreclosure is classified as foreclosed  real estate until such time as it is
sold.  When such property is acquired,  it is recorded at its fair market value.
Subsequent to foreclosure,  the property is carried at the lower of cost or fair
value less selling costs. Additional write-downs as well as carrying expenses of
the  foreclosed  properties are charged to expenses in the current  period.  The
Bank had foreclosed real estate with a fair market value of  approximately  $1.8
million at December 31, 2001.

During 2001,  due to changes in local  zoning  ordinances  severely  restraining
building permits,  one borrower could not meet the financial  obligations of his
$1.2 million loan. The Bank negotiated with this borrower and agreed to accept a
deed in lieu of foreclosure on July 12, 2001 in order to complete development of
the land. The property was transferred to a wholly owned  subsidiary of the Bank
on this date.  As of December 31, 2001,  this asset is  classified as foreclosed
real estate.  Management  has  reviewed  the value of the property  received and
related costs,  approximately $1.3 million, and has concluded that no write down
of the property  value is required.  The value of the property  will be reviewed
periodically,  and any necessary reduction in the carrying value of the property
will  be  reflected  in  the  results  of  operations.   Management  intends  to
aggressively  pursue its rights  with  regard to this asset  including  possible
legal action.

                                       9
<PAGE>

The  following  table  sets  forth   information  with  respect  to  the  Bank's
non-performing  loans for the periods  indicated.  During the periods shown, the
Bank had no  impaired  loans  within  the  meaning  of  Statement  of  Financial
Accounting Standards No. 114 and 118.
<TABLE>
<CAPTION>
                                                               AT DECEMBER 31,
                                        ----------------------------------------------------------------
                                          2001          2000        1999          1998          1997
                                          -----         ------      -----         ----          -----
                                                              (DOLLARS IN THOUSANDS)
<S>                                     <C>          <C>          <C>           <C>          <C>
Restructured loans....................  $       --   $       --   $       --    $      --    $        --
                                        ----------   ----------   ----------    ---------    -----------

Accruing loans which are contractually
past due 90 days or more:
  Real estate:
    Residential first mortgage.......   $       --   $       --   $       --    $      --    $        --
    Commercial........................          --           --           --           --             --
    Construction and land development.          --           --           --           --             --
    Home equity and second
      mortgage........................          25          102          171          196            165
  Commercial .........................          --           --           --           --             --
  Consumer............................          --           --           --           --             --
                                        ----------   ----------   ----------    ---------    -----------
    Total.............................          25          102          171          196            165
                                        ----------   ----------   ----------    ---------    -----------

Loans accounted for on a nonaccrual
  basis:
  Real estate:
    Residential first mortgage........  $      134   $       --   $       20    $     126    $        34
    Commercial........................          --           --           --           --             --
    Construction and land development.          --           --           --           --             --
    Home equity and second
      mortgage........................          --           --           --           --             --
  Commercial .........................          --           --           --           85             30
  Consumer............................          70            7          198           58             95
                                        ----------   ----------   ----------    ---------    -----------
    Total.............................         204            7          218          269            159
                                        ----------   ----------   ----------    ---------    -----------
Total non-performing loans............  $      229   $      109   $      389    $     465    $       324
                                        ==========   ==========   ==========    =========    ===========

Non-performing loans to total
    loans.............................        0.07%        0.06%        0.26%        0.34%          0.26%
                                        ==========  ===========   ==========    =========    ===========

Allowance for loan losses
    to non-performing loans...........      996.07%    1,770.55%      424.94%      331.18%        404.32%
                                        ==========  ===========   ==========    =========    ===========
</TABLE>

During the year ended December 31, 2001,  gross interest  income of $10 thousand
would have been recorded on loans  accounted  for on a non-accrual  basis if the
loans had been current throughout the period.  During the year 2001, the Company
recognized $0 in interest on these loans.

At December 31, 2001, there were no loans outstanding not reflected in the above
table as to which known  information about possible credit problems of borrowers
caused  management to have serious doubts as to the ability of such borrowers to
comply with present loan repayment terms.


                                       10
<PAGE>

The following  table sets forth an analysis of activity in the Bank's  allowance
for possible loan losses for the periods indicated.
<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                        ----------------------------------------------------------------
                                           2001         2000          1999         1998        1997
                                          ------       ------        ------       ------      ------
                                                              (DOLLARS IN THOUSANDS)
<S>                                     <C>          <C>          <C>           <C>          <C>
Balance at Beginning of Period........  $    1,930   $    1,653   $    1,540    $   1,310    $     1,120
                                        ----------   ----------   ----------    ---------    -----------

Charge-Offs:
 Real estate loans --
   Residential first mortgages........          --           56           --           --             11
 Commercial ..........................          --           33          102           --             21
 Consumer.............................          39            6           32           10             18
                                        ----------   ----------   ----------    ---------    -----------
Total Charge-Offs.....................          39           95          134           10             50
                                        ----------   ----------   ----------    ---------    -----------

Recoveries:
 Real estate loans --
   Residential first mortgages........          --           --           --           --             --
 Commercial...........................          --           --           --           --             --
 Consumer.............................          31           12            7           --             --
                                        ----------   ----------   ----------    ---------    -----------
Total Recoveries......................          31           12            7           --             --
                                        ----------   ----------   ----------    ---------    -----------
Net Charge-Offs.......................           8           83          127           10             50

Provision for Possible Loan Losses....         360          360          240          240            240
                                        ----------   ----------   ----------    ---------    -----------

Balance at End of Period..............  $    2,282   $    1,930   $    1,653    $   1,540    $     1,310
                                        ==========   ==========   ==========    =========    ===========

Ratio of Net Charge-Offs to Average
  Loans Outstanding During
  the Period..........................        0.01%        0.05%        0.09%        0.01%         0.04%
                                        ==========   ==========   ==========    =========    ==========
</TABLE>

                                       11
<PAGE>

The following  table allocates the allowance for loan losses by loan category at
the dates  indicated.  The  allocation  of the allowance to each category is not
necessarily  indicative  of future  losses and does not  restrict the use of the
allowance to absorb losses in any category.
<TABLE>
<CAPTION>
                                                                           AT DECEMBER 31,
                                            -------------------------------------------------------------------------------
                                                          2001                  2000                     1999
                                            --------------------------  -----------------------  --------------------------
                                                         PERCENT OF                PERCENT OF                 PERCENT OF
                                                        LOANS IN EACH             LOANS IN EACH              LOANS IN EACH
                                                         CATEGORY TO               CATEGORY TO                CATEGORY TO
                                            AMOUNT       TOTAL LOANS    AMOUNT     TOTAL LOANS   AMOUNT       TOTAL LOANS
                                            ------      -------------   ------    -------------  ------      -------------
                                                                         (DOLLARS IN THOUSANDS)
<S>                                         <C>            <C>         <C>            <C>        <C>             <C>
Real estate loans --
   Residential first mortgage.............  $     160      31.3%       $     192      38.9%      $     632       44.4%
   Commercial.............................        923      33.4              645      24.1             399       20.1
   Construction and land development......        355       9.2              285       9.9             164       11.5
   Home equity and second mortgage........        373       9.5              394      10.7             159       11.2
Commercial................................        186       9.4              138       8.6             178        6.7
Consumer..................................        285       7.2              276       7.8             121        6.1
                                            ---------      ----        ---------    ------       ---------     ------
        Total allowance for loan losses...  $   2,282     100.0%       $   1,930     100.0%      $   1,653      100.0%
                                            =========     =====        =========     =====       =========      =====

<CAPTION>
                                                                  AT DECEMBER 31,
                                            ----------------------------------------------------
                                                    1998                      1997
                                            --------------------------  ------------------------
                                                         PERCENT OF                PERCENT OF
                                                        LOANS IN EACH             LOANS IN EACH
                                                         CATEGORY TO               CATEGORY TO
                                            AMOUNT       TOTAL LOANS    AMOUNT     TOTAL LOANS
                                            ------      -------------   ------    -------------
                                                            (DOLLARS IN THOUSANDS)
<S>                                         <C>            <C>         <C>            <C>
Real estate loans --
   Residential first mortgage.............  $     652      47.6%       $     579      49.6%
   Commercial.............................        281      14.6              255      15.5
   Construction and land development......        211      15.4              138      11.8
   Home equity and second mortgage........        166      12.1              164      14.0
Commercial................................        117       4.5               87       3.9
Consumer..................................        113       5.8               87       5.2
                                            ---------     -----        ---------    ------
        Total allowance for loan losses...  $   1,540     100.0%       $   1,310     100.0%
                                            =========     =====        =========     =====
</TABLE>

The Bank closely  monitors the loan  payment  activity of all its loans.  A loan
loss provision is provided by a regular accrual.  The Bank periodically  reviews
the adequacy of the  allowance  for loan losses based on an analysis of the loan
portfolio,  the Bank's  historical loss experience,  economic  conditions in the
Bank's market area, and a review of selected  individual  loans. Loan losses are
charged  off against  the  allowance  when the  uncollectibility  is  confirmed.
Subsequent recoveries,  if any, are credited to the allowance. The Bank believes
it has  established  its existing  allowance for loan losses in accordance  with
generally accepted  accounting  principles and is in compliance with appropriate
regulatory guidelines.  However, the establishment of the level of the allowance
for loan losses is highly subjective and dependent on incomplete  information as
to the ultimate  disposition  of loans.  Accordingly,  there can be no assurance
that  actual  losses  may vary from the  amounts  estimated  or that the  Bank's
regulators will not request the Bank to  significantly  increase or decrease its
allowance for loan losses,  thereby affecting the Bank's financial condition and
earnings.

                                       12
<PAGE>

INVESTMENT ACTIVITIES

The Bank maintains a portfolio of investment  securities to provide liquidity as
well as a  source  of  earnings.  The  Bank's  investment  securities  portfolio
consists  primarily  of  mortgage-backed  and  other  securities  issued by U.S.
Government-sponsored  enterprises  ("GSEs")  including FHLMC, FNMA, SLMA and the
FHLB  System.   The  Bank  also  has  smaller   holdings  of  privately   issued
mortgage-backed securities, U.S. Treasury obligations, and other equity and debt
securities.  As a member of the Federal  Reserve and FHLB  Systems,  the Bank is
also required to invest in the stock of the Federal Reserve Bank of Richmond and
FHLB of Atlanta, respectively.

The following  table sets forth the carrying  value of the Company's  investment
securities  portfolio and FHLB of Atlanta and Federal  Reserve Bank stock at the
dates indicated. At December 31, 2001, their market value was $47 million.
<TABLE>
<CAPTION>
                                                                           AT DECEMBER 31,
                                                         -------------------------------------------------
                                                           2001                  2000               1999
                                                           ----                 -----              -----
                                                                            (IN THOUSANDS)
<S>                                                      <C>                 <C>                 <C>
Asset-backed securities:
   FHLMC and FNMA....................................    $  26,084           $  30,577           $  29,501
   Other.............................................        8,993              16,855              17,964
                                                         ---------           ---------           ---------
      Total asset-backed securities..................       35,077              47,432              47,465
FHLMC, FNMA, SLMA and FHLB notes.....................           --               7,912               7,619
FHLMC and FNMA stock.................................          727                 764                 751
Money market funds...................................        5,868                 753                 820
Treasury bills.......................................          300                 200                 198
Other investments....................................        1,989               1,514               1,749
                                                         ---------           ---------           ---------
      Total investment securities....................       43,961              58,575              58,602
         FHLB and Federal Reserve Bank stock.........        3,036               3,036               2,288
                                                         ---------           ---------           ---------
      Total investment securities and FHLB and
        Federal Reserve Bank stock...................    $  46,997           $  61,611           $  60,890
                                                         =========           =========           =========
</TABLE>

The maturities and weighted average yields for investment  securities  available
for sale and held to maturity at December 31, 2001 are shown below.
<TABLE>
<CAPTION>

                                                                AFTER ONE               AFTER FIVE
                                       ONE YEAR OR LESS    THROUGH  FIVE YEARS      THROUGH TEN YEARS      AFTER TEN YEARS
                                    --------------------   -------------------    --------------------   --------------------
                                    CARRYING     AVERAGE   CARRYING    AVERAGE    CARRYING     AVERAGE   CARRYING    AVERAGE
                                      VALUE       YIELD      VALUE      YIELD      VALUE        YIELD      VALUE       YIELD
                                    --------     -------   --------    -------    --------     -------   --------    --------
                                                                    (DOLLARS IN THOUSANDS)
<S>                                 <C>           <C>      <C>         <C>        <C>          <C>       <C>          <C>
Investment securities available
 for sale:
   Corporate equity securities...   $    727      3.76%    $    --       --%      $    --        --%     $   --          --%
   Asset-backed securities.......      8,068      5.55      14,606     6.09        12,108      4.95         295        7.99
   Money market funds............      5,868      1.70          --       --            --        --          --          --
                                       -----               --------               -------                ------
     Total investment securities
        available for sale.......   $ 14,663      3.92 %   $14,606     6.09%      $12,108      4.95%     $  295        7.99%
                                    ========      ====     =======     ====       =======      ====      ======        ====


Investment securities held-to-
 maturity:
      Treasury bills.............   $    300      5.30%    $    --       --%      $    --        --%     $   --          --%
      Other investments..........        978      6.18       1,011     5.90            --        --          --          --
                                    --------               -------                -------                ------
     Total investment securities
        held-to-maturity.........   $  1,278      5.97     $ 1,011     5.90%      $    --        --%     $   --          --%
                                    ========      ====     =======     ====       =======      ====      ======         ====
</TABLE>

                                       13
<PAGE>

The Bank's  investment  policy  provides that  securities  that will be held for
indefinite  periods of time,  including  securities that will be used as part of
the Bank's asset/liability  management strategy and that may be sold in response
to changes in interest rates, prepayments and similar factors, are classified as
available for sale and accounted for at the fair value.  Management's  intent is
to hold securities reported at amortized cost to maturity.

Certain of the Company's securities are issued by private issuers (defined as an
issuer which is not a government or a government sponsored entity). Although the
Company  generally  limits its exposure to private issuers to total  investments
from any one issuer to less than 10% of equity, in certain cases the Company has
made higher investments. These investments are classified as available for sale,
and carrying value therefore equals market value. Details of such investments at
December 31, 2001 follow:

                                                                  ESTIMATED FAIR
ISSUER                                      MOODY'S RATING        MARKET VALUE
------                                      --------------        --------------
                                                                  (IN THOUSANDS)

GE Capital Mortgage Services..............       AAA                   $  4,571


For further information regarding the Company's investment securities,  see Note
2 of Notes to Consolidated Financial Statements.

DEPOSITS AND OTHER SOURCES OF FUNDS

GENERAL.  The funds needed by the Bank to make loans are primarily  generated by
deposit accounts solicited from the communities  surrounding its main office and
seven branches in the southern Maryland area.  Consolidated  total deposits were
$183,116,534  as of December 31, 2001. The Bank uses borrowings from the FHLB of
Atlanta and other sources to supplement funding from deposits.

DEPOSITS.   The  Bank's  deposit   products  include  regular  savings  accounts
(statements),   money  market  deposit   accounts,   demand  deposit   accounts,
interest-bearing  demand deposit accounts, IRA and SEP accounts,  Christmas club
accounts and certificates of deposit.  Variations in service charges,  terms and
interest  rates are used to target  specific  markets.  Ancillary  products  and
services for deposit  customers  include safe  deposit  boxes,  money orders and
travelers checks, night depositories, automated clearinghouse transactions, wire
transfers,  ATMs, and telephone banking. The Bank is a member of JEANIE,  Cirrus
and Honor ATM networks. The Bank has occasionally used deposit brokers to obtain
funds. At year end, no brokered deposits were held.

The following  table sets forth for the periods  indicated the average  balances
outstanding and average interest rates for each major category of deposits.
<TABLE>
<CAPTION>
                                                              FOR THE YEAR ENDED DECEMBER 31,
                                      ----------------------------------------------------------------------------
                                              2001                        2000                      1999
                                      --------------------       --------------------       ----------------------
                                      AVERAGE      AVERAGE       AVERAGE      AVERAGE       AVERAGE       AVERAGE
                                      BALANCE       RATE         BALANCE       RATE         BALANCE        RATE
                                      -------      -------       -------      -------       -------       --------
                                                               (DOLLARS IN THOUSANDS)
<S>                                 <C>             <C>        <C>               <C>      <C>              <C>
Savings..........................   $     19,723    2.01%      $    20,051       2.37%    $     23,774     2.32%
Interest-bearing demand and money
   market accounts...............         72,052    2.35            59,720       3.58           46,663     2.82
Certificates of deposit..........         70,453    5.45            69,592       5.32           75,093     4.87
                                    ------------               -----------                ------------
    Total interest-bearing
      deposits...................        162,228    3.65           149,363       4.23          145,530     3.80
Noninterest-bearing demand
   deposits......................         13,872                    10,691                       9,169
                                    ------------               -----------                ------------
     Total average deposits......   $    176,100    3.37       $   160,324       3.94     $    154,699     3.57
                                    ============               ===========                ============
</TABLE>

                                       14
<PAGE>

The following table  indicates the amount of the Bank's  certificates of deposit
and other time deposits of more than $100,000 by time  remaining  until maturity
as of December 31, 2001.

                                                             CERTIFICATES
              MATURITY PERIOD                                 OF DEPOSIT
              ---------------                               --------------
                                                            (IN THOUSANDS)

  Three months or less....................................   $    7,496
  Three through six months................................        2,202
  Six through twelve months...............................        2,615
  Over twelve months......................................        4,705
                                                             ----------
         Total............................................   $   17,018
                                                             ==========

BORROWINGS.  Deposits are the primary source of funds for the Bank's lending and
investment  activities  and for its  general  business  purposes.  The Bank uses
advances from the FHLB of Atlanta to supplement its supply of lendable funds and
to meet deposit withdrawal  requirements.  Advances from the FHLB are secured by
the Bank's stock in the FHLB, a portion of the Bank's residential mortgage loans
and its eligible  investments.  Generally the Bank's  ability to borrow from the
FHLB of Atlanta is limited by its  available  collateral  and also by an overall
limitation of 35% of assets.  Other short-term debt consists of notes payable to
the U.S.  Treasury on  Treasury,  Tax and Loan  accounts.  Long-term  borrowings
consist of  adjustable-rate  advances  with rates based upon  LIBOR,  fixed-rate
advances,  and convertible advances.  Information about borrowings for the years
indicated (which consisted almost entirely of FHLB advances) is as follows:
<TABLE>
<CAPTION>
                                                                                 AT OR FOR THE
                                                                               YEAR ENDED DECEMBER 31,
                                                                 ------------------------------------------------
                                                                    2001               2000               1999
                                                                 ----------         ----------         ----------
                                                                                (DOLLARS IN THOUSANDS)
<S>                                                             <C>                 <C>                <C>
Long-term amounts outstanding at end of period...............   $  48,650           $  41,400          $ 31,400
Weighted average rate on outstanding long-term...............        5.41%               5.91%             5.54%
Short-term borrowings outstanding at end of period...........   $   1,813           $  13,551          $ 13,398
Weighted average rate on outstanding short-term..............        1.83%               6.35%             5.55%
Maximum outstanding short-term debt at any month end.........   $  15,725           $  35,100          $ 16,500
Average outstanding short-term debt .........................   $   6,213           $  25,810          $  9,129
Approximate weighted average rate paid on short-term
  debt (1)...................................................        5.75%               6.62%             5.39%
<FN>
__________
(1)  Based on month-end balances.
</FN>
</TABLE>

For more  information  regarding the Bank's  borrowings,  see Note 7 of Notes to
Consolidated Financial Statements.

SUBSIDIARY ACTIVITIES

Under the Maryland Financial  Institutions Code,  commercial banks may invest in
service  corporations  and  in  other  subsidiaries  that  offer  the  public  a
financial,  fiduciary or insurance service.  In 1985, the Bank formed Tri-County
Federal  Finance One as a finance  subsidiary  for the purpose of issuing a $6.5
million  collateralized  mortgage  obligation.  In June 1999, the obligation was
satisfied,  allowing  the return of the  participation  certificates  serving as
collateral  to the Bank and closing  the  subsidiary.  In April  1997,  the Bank
formed a wholly owned subsidiary,  Community Mortgage Corporation of Tri-County,
to offer mortgage  banking,  brokerage,  and other services to the public.  This
corporation  was  inactive  until 2001.  At that time,  the Bank  transferred  a
property which was acquired by deed in lieu of foreclosure to this subsidiary in
order to complete  development of this parcel. In August 1999, the Bank formed a
wholly owned subsidiary,  Tri-County Investment Corporation to hold and manage a
portion of the Bank's investment portfolio in the State of Delaware.

                                       15
<PAGE>

COMPETITION

The Bank faces  strong  competition  in the  attraction  of deposits  and in the
origination of loans.  Its most direct  competition for deposits and loans comes
from other banks,  savings and loan  associations,  and federal and state credit
unions located in its primary market area.  There are currently 15  FDIC-insured
depository  institutions operating in the Tri-County area including subsidiaries
of several  regional and  super-regional  bank holding  companies.  According to
statistics  compiled by the FDIC,  the Bank was ranked  sixth in deposit  market
share in the Tri-County area as of June 30, 2001, the latest date for which such
data is  available.  The  Bank  faces  additional  significant  competition  for
investors'  funds  from  mutual  funds,  brokerage  firms,  and other  financial
institutions.

The Bank  competes  for loans by providing  competitive  rates,  flexibility  of
terms,  and  service.  It competes  for  deposits by offering  depositors a wide
variety of account types,  convenient office locations,  and competitive  rates.
Other services  offered  include  tax-deferred  retirement  programs,  brokerage
services,  safe deposit boxes,  and  miscellaneous  services.  The Bank has used
direct mail, billboard and newspaper advertising to increase its market share of
deposits,  loans and other  services in its market  area.  It  provides  ongoing
training for its staff in an attempt to ensure high quality service.

                           SUPERVISION AND REGULATION

REGULATION OF THE BANK

GENERAL.  The Bank is a Maryland  commercial  bank and its deposit  accounts are
insured  by the  SAIF.  The Bank is a member  of the  Federal  Reserve  and FHLB
Systems.  The Bank is subject to  supervision,  examination  and  regulation  by
Commissioner   of   Financial   Regulation   of  the  State  of  Maryland   (the
"Commissioner")  and the Board of Governors of the Federal  Reserve  System (the
"FRB") and to Maryland and federal statutory and regulatory provisions governing
such matters as capital standards,  mergers and establishment of branch offices.
The  Bank  is  required  to  file  reports  with  the  Commissioner  and the FRB
concerning its activities and financial condition and will be required to obtain
regulatory  approvals  prior to entering  into certain  transactions,  including
mergers with, or acquisitions of, other depository institutions.

As an  institution  with  federally  insured  deposits,  the Bank is  subject to
various regulations promulgated by the FRB, including Regulation B (Equal Credit
Opportunity), Regulation D (Reserve Requirements), Regulation E (Electronic Fund
Transfers),  Regulation Z (Truth in Lending),  Regulation  CC  (Availability  of
Funds and Collection of Checks) and Regulation DD (Truth in Savings).

The system of regulation and  supervision  applicable to the Bank  establishes a
comprehensive framework for the operations of the Bank and is intended primarily
for the  protection of the FDIC and the  depositors of the Bank.  Changes in the
regulatory framework could have a material effect on the Bank and its respective
operations that in turn, could have a material effect on the Company.

CAPITAL  ADEQUACY.  The FRB  has  established  guidelines  with  respect  to the
maintenance of appropriate levels of capital by bank holding companies and state
member banks, respectively.  The regulations impose two sets of capital adequacy
requirements:  minimum leverage rules,  which require bank holding companies and
member banks to maintain a specified  minimum  ratio of capital to total assets,
and risk-based capital rules, which require the maintenance of specified minimum
ratios of capital to "risk-weighted" assets.

The  regulations  of the FRB require  bank  holding  companies  and state member
banks,  respectively,  to maintain a minimum  leverage ratio of "Tier 1 capital"
(as defined in the  risk-based  capital  guidelines  discussed in the  following
paragraphs)  to total assets of 3.0%.  Although  setting a minimum 3.0% leverage
ratio,  the  capital  regulations  state that only the  strongest  bank  holding
companies and banks,  with composite  examination  ratings of 1 under the rating
system used by the federal bank regulators,  would be permitted to operate at or
near such minimum level of capital.  All other bank holding  companies and banks
are expected to maintain a leverage ratio of at least 1% to 2% above the minimum
ratio,  depending on the  assessment  of an  individual  organization's  capital
adequacy by its primary

                                       16
<PAGE>

regulator.  Any  bank or  bank  holding  company  experiencing  or  anticipating
significant  growth would be expected to maintain capital well above the minimum
levels.  In addition,  the FRB has indicated that whenever  appropriate,  and in
particular  when a bank holding  company is  undertaking  expansion,  seeking to
engage in new activities or otherwise  facing unusual or abnormal risks, it will
consider,  on a  case-by-case  basis,  the level of an  organization's  ratio of
tangible Tier 1 capital  (after  deducting all  intangibles)  to total assets in
making an overall assessment of capital.

The risk-based capital rules of the FRB require bank holding companies and state
member banks, respectively,  to maintain minimum regulatory capital levels based
upon a weighting of their assets and off-balance sheet obligations  according to
risk. Risk-based capital is composed of two elements:  Tier 1 capital and Tier 2
capital.  Tier 1 capital  consists  primarily  of common  stockholders'  equity,
certain  perpetual  preferred stock (which must be  noncumulative in the case of
banks),   and  minority   interests  in  the  equity  accounts  of  consolidated
subsidiaries;  less all intangible assets,  except for certain servicing assets,
purchased  credit card  relationships,  deferred tax assets and credit enhancing
interest-only  strips.  Tier 2 capital  elements  include,  subject  to  certain
limitations,  the allowance for losses on loans and leases;  perpetual preferred
stock that does not qualify as Tier 1 capital and long-term preferred stock with
an  original  maturity  of at least  20  years  from  issuance;  hybrid  capital
instruments,  including perpetual debt and mandatory convertible securities; and
subordinated debt and intermediate-term preferred stock.

The  risk-based  capital  regulations  assign  balance  sheet  assets and credit
equivalent  amounts of off-balance  sheet  obligations to one of four broad risk
categories  based  principally on the degree of credit risk  associated with the
obligor.  The assets and off-balance sheet items in the four risk categories are
weighted  at 0%,  20%,  50% and  100%.  These  computations  result in the total
risk-weighted  assets. The risk-based capital  regulations require all banks and
bank holding  companies  to maintain a minimum  ratio of total  capital  (Tier 1
capital plus Tier 2 capital) to total risk-weighted  assets of 8%, with at least
4% as Tier 1 capital.  For the purpose of calculating  these ratios:  (i) Tier 2
capital  is  limited  to no more  than  100% of Tier 1  capital;  and  (ii)  the
aggregate amount of certain types of Tier 2 capital is limited. In addition, the
risk-based capital regulations limit the allowance for loan losses includable as
capital to 1.25% of total risk-weighted assets.

FRB regulations and guidelines additionally specify that state member banks with
significant  exposure to declines in the economic  value of their capital due to
changes in interest rates may be required to maintain higher risk-based  capital
ratios. The federal banking agencies,  including the FRB, have proposed a system
for  measuring  and  assessing  the exposure of a bank's net  economic  value to
changes in interest rates. The federal banking agencies, including the FRB, have
stated their intention to propose a rule establishing an explicit capital charge
for interest rate risk based upon the level of a bank's  measured  interest rate
risk  exposure  after  more   experience  has  been  gained  with  the  proposed
measurement  process.  FRB  regulations  do not  specifically  take into account
interest rate risk in measuring the capital adequacy of bank holding companies.

The FRB has issued  regulations  which  classify  state  member banks by capital
levels and which authorize the FRB to take various prompt corrective  actions to
resolve the  problems  of any bank that fails to satisfy the capital  standards.
Under such regulations,  a  well-capitalized  bank is one that is not subject to
any  regulatory  order or directive to meet any specific  capital level and that
has or exceeds the following capital levels: a total risk-based capital ratio of
10%, a Tier 1  risk-based  capital  ratio of 6%, and a leverage  ratio of 5%. An
adequately capitalized bank is one that does not qualify as well-capitalized but
meets or exceeds the following capital requirements:  a total risk-based capital
ratio of 8%, a Tier 1 risk-based  capital  ratio of 4%, and a leverage  ratio of
either  (i) 4% or (ii) 3% if the  bank  has the  highest  composite  examination
rating.  A bank not  meeting  these  criteria  is treated  as  undercapitalized,
significantly undercapitalized,  or critically undercapitalized depending on the
extent to which the bank's  capital  levels are below these  standards.  A state
member  bank that  falls  within  any of the three  undercapitalized  categories
established by the prompt corrective action regulation will be subject to severe
regulatory sanctions.  As of December 31, 2001, the Bank was well capitalized as
defined by the FRB's regulations.

BRANCHING.  Maryland law provides that,  with the approval of the  Commissioner,
Maryland  banks may  establish  branches  within the State of  Maryland  without
geographic  restriction and may establish  branches in other states by any means
permitted  by the laws of such  state or by federal  law.  The  Riegle-Neal  Act
authorizes the FRB to approve interstate  branching de novo by state banks, only
in states which specifically allow for such branching.  The


                                       17
<PAGE>

Riegle-Neal  Act also  required  the  appropriate  federal  banking  agencies to
prescribe  regulations  which  prohibit  any  out-of-state  bank from  using the
interstate  branching authority primarily for the purpose of deposit production.
These regulations include guidelines to ensure that interstate branches operated
by an  out-of-state  bank in a host  state are  reasonably  helping  to meet the
credit needs of the communities which they serve.

DIVIDEND  LIMITATIONS.  Pursuant to the Maryland  Financial  Institutions  Code,
Maryland banks may only pay dividends from undivided  profits or, with the prior
approval  of the  Commissioner,  their  surplus  in excess  of 100% of  required
capital stock. The Maryland  Financial  Institutions  Code further restricts the
payment of dividends by prohibiting a Maryland bank from declaring a dividend on
its shares of common  stock until its surplus fund equals the amount of required
capital  stock or, if the  surplus  fund  does not equal the  amount of  capital
stock, in an amount in excess of 90% of net earnings.

Without the  approval  of the FRB, a state  member bank may not declare or pay a
dividend if the total of all dividends  declared during the year exceeds its net
income  during the current  calendar  year and retained net income for the prior
two years. The Bank is further prohibited from making a capital  distribution if
it would not be adequately capitalized thereafter. In addition, the Bank may not
make a capital  distribution  that would  reduce its net worth  below the amount
required to maintain the liquidation  account established for the benefit of its
depositors at the time of its conversion to stock form.

DEPOSIT INSURANCE.  The Bank is required to pay semi-annual assessments based on
a percentage  of its insured  deposits to the FDIC for insurance of its deposits
by the Savings  Association  Insurance Fund ("SAIF").  Under the Federal Deposit
Insurance  Act,  the  FDIC  is  required  to  set  semi-annual  assessments  for
SAIF-insured  institutions to maintain the designated  reserve ratio of the SAIF
at 1.25% of estimated  insured  deposits or at a higher  percentage of estimated
insured  deposits  that the FDIC  determines  to be  justified  for that year by
circumstances  raising a significant  risk of  substantial  future losses to the
SAIF.  In the event  that the SAIF  should  fail to meet its  statutory  reserve
ratio,  the FDIC would be required to set semi-annual  assessment rates for SAIF
members that are  sufficient  to increase the reserve  ratio to 1.25% within one
year or in  accordance  with  such  other  schedule  that  the  FDIC  adopts  by
regulation to restore the reserve ratio in not more than 15 years.

Under the risk-based  deposit  insurance  assessment system adopted by the FDIC,
the  assessment  rate  for an  insured  depository  institution  depends  on the
assessment risk classification assigned to the institution by the FDIC, which is
determined by the institution's capital level and supervisory evaluations. Based
on the data reported to  regulators  for the date closest to the last day of the
fourth month  preceding the  semi-annual  assessment  period,  institutions  are
assigned  to one of  three  capital  groups  --  "well  capitalized,  adequately
capitalized or  undercapitalized."  Within each capital group,  institutions are
assigned to one of three  subgroups on the basis of  supervisory  evaluations by
the institution's  primary  supervisory  authority and such other information as
the FDIC determines to be relevant to the institution's  financial condition and
the risk posed to the  deposit  insurance  fund.  Under the  current  assessment
schedule,  well-capitalized  banks  with the best  supervisory  ratings  are not
required  to pay any  premium for deposit  insurance.  All  SAIF-insured  banks,
however,  are  required  to pay  assessments  to the FDIC to help fund  interest
payments  on  certain  bonds  issued  by the  Financing  Corporation,  an agency
established by the federal government to finance takeovers of insolvent thrifts.

TRANSACTIONS  WITH  AFFILIATES.  A state member bank or its subsidiaries may not
engage in "covered  transactions"  with any one  affiliate in an amount  greater
than 10% of such bank's capital stock and surplus, and for all such transactions
with all affiliates a state non-member bank is limited to an amount equal to 20%
of  capital  stock  and  surplus.  All such  transactions  must also be on terms
substantially  the same, or at least as favorable,  to the bank or subsidiary as
those provided to a non-affiliate.  The term "covered  transaction" includes the
making of loans,  purchase of assets,  issuance of a guarantee and similar other
types of transactions. An affiliate of a state non-member bank is any company or
entity which controls or is under common control with the state  non-member bank
and, for purposes of the aggregate limit on transactions  with  affiliates,  any
subsidiary that would be deemed a financial  subsidiary of a national bank. In a
holding company  context,  the parent holding company of a state non-member bank
(such as the  Company) and any  companies  which are  controlled  by such parent
holding  company are affiliates of the state  non-member  bank. The BHCA further
prohibits a  depository  institution  from  extending  credit to or offering any
other  services,  or fixing or varying the  consideration  for such extension of
credit or service,  on the

                                       18
<PAGE>

condition that the customer obtain some additional  service from the institution
or certain of its  affiliates  or not obtain  services  of a  competitor  of the
institution, subject to certain limited exceptions.

LOANS TO  DIRECTORS,  EXECUTIVE  OFFICERS AND PRINCIPAL  STOCKHOLDERS.  Loans to
directors,  executive officers and principal  stockholders of a state non-member
bank  must be made on  substantially  the same  terms as  those  prevailing  for
comparable transactions with persons who are not executive officers,  directors,
principal stockholders or employees of the Bank unless the loan is made pursuant
to a compensation or benefit plan that is widely available to employees and does
not favor  insiders.  Loans to any  executive  officer,  director and  principal
stockholder  together  with  all  other  outstanding  loans to such  person  and
affiliated  interests  generally  may not exceed  15% of the  bank's  unimpaired
capital  and  surplus  and  all  loans  to  such  persons  may  not  exceed  the
institution's  unimpaired  capital and unimpaired  surplus.  Loans to directors,
executive officers and principal stockholders,  and their respective affiliates,
in  excess of the  greater  of  $25,000  or 5% of  capital  and  surplus  (up to
$500,000) must be approved in advance by a majority of the board of directors of
the bank with any "interested"  director not participating in the voting.  State
member banks are prohibited from paying the overdrafts of any of their executive
officers  or  directors   unless   payment  is  made   pursuant  to  a  written,
pre-authorized interest-bearing extension of credit plan that specifies a method
of repayment or transfer of funds from another account at the bank. In addition,
loans to executive  officers may not be made on terms more  favorable than those
afforded  other  borrowers and are  restricted  as to type,  amount and terms of
credit.

REGULATION OF THE COMPANY

GENERAL.  The Company,  as the sole  shareholder  of the Bank, is a bank holding
company and registered as such with the FRB. Bank holding  companies are subject
to  comprehensive  regulation  by the FRB under the Bank Holding  Company Act of
1956, as amended (the "BHCA"), and the regulations of the FRB. As a bank holding
company,  the Company is  required to file with the FRB annual  reports and such
additional  information  as the FRB  may  require,  and is  subject  to  regular
examinations by the FRB. The FRB also has extensive  enforcement  authority over
bank holding  companies,  including,  among other things,  the ability to assess
civil  money  penalties,  to issue  cease and  desist or  removal  orders and to
require  that  a  holding  company  divest  subsidiaries   (including  its  bank
subsidiaries).  In general,  enforcement actions may be initiated for violations
of law and regulations and unsafe or unsound practices.

Under the BHCA, a bank holding  company  must obtain FRB  approval  before:  (i)
acquiring, directly or indirectly,  ownership or control of any voting shares of
another bank or bank holding company if, after such acquisition, it would own or
control  more than 5% of such shares  (unless it already  owns or  controls  the
majority of such shares);  (ii) acquiring all or substantially all of the assets
of another bank or bank holding company;  or (iii) merging or consolidating with
another bank holding company.

Effective  September 29, 1995, the Riegle-Neal  Interstate Banking and Branching
Efficiency  of 1994 (the  "Riegle-Neal  Act")  authorized  the FRB to approve an
application of an adequately  capitalized  and  adequately  managed bank holding
company to acquire control of, or acquire all or substantially all of the assets
of, a bank  located in a state  other than such  holding  company's  home state,
without  regard to whether  the  transaction  is  prohibited  by the laws of any
state.  The FRB may not approve the  acquisition  of a bank that has not been in
existence for the minimum time period (not  exceeding  five years)  specified by
the statutory law of the host state.  The Riegle-Neal Act also prohibits the FRB
from  approving  such  an  application  if the  applicant  (and  its  depository
institution  affiliates)  controls or would control more than 10% of the insured
deposits  in the  United  States or 30% or more of the  deposits  in the  target
bank's home state or in any state in which the target  bank  maintains a branch.
The  Riegle-Neal  Act does not  affect  the  authority  of  states  to limit the
percentage  of  total  insured  deposits  in the  state  which  may be  held  or
controlled by a bank or bank holding  company to the extent such limitation does
not  discriminate   against   out-of-state  banks  or  bank  holding  companies.
Individual  states  may  also  waive  the  30%  state-wide  concentration  limit
contained in the Riegle-Neal  Act. Under Maryland law, a bank holding company is
prohibited from acquiring  control of any bank if the bank holding company would
control more than 30% of the total  deposits of all depository  institutions  in
the State of Maryland unless waived by the Commissioner of Financial Regulation.


                                       19
<PAGE>

Additionally,  the federal banking agencies are authorized to approve interstate
merger transactions  without regard to whether such transaction is prohibited by
the law of any state, unless the home state of one of the banks opted out of the
Riegle-Neal Act by adopting a law after the date of enactment of the Riegle-Neal
Act and prior to June 1, 1997 which applies  equally to all  out-of-state  banks
and expressly  prohibits merger transactions  involving  out-of-state banks. The
State of  Maryland  did not  pass  such a law  during  this  period.  Interstate
acquisitions of branches will be permitted only if the law of the state in which
the branch is located permits such  acquisitions.  Interstate mergers and branch
acquisitions  will also be  subject  to the  nationwide  and  statewide  insured
deposit concentration amounts described above.

The BHCA also prohibits a bank holding company,  with certain  exceptions,  from
acquiring direct or indirect  ownership or control of more than 5% of the voting
shares  of any  company  which is not a bank or bank  holding  company,  or from
engaging  directly  or  indirectly  in  activities  other than those of banking,
managing or controlling banks, or providing  services for its subsidiaries.  The
principal  exceptions to these prohibitions  involve certain non-bank activities
which,  by  statute  or by FRB  regulation  or order,  have been  identified  as
activities closely related to the business of banking or managing or controlling
banks. The list of activities permitted by the FRB includes, among other things,
operating a savings institution,  mortgage company, finance company, credit card
company or factoring  company;  performing  certain data processing  operations;
providing certain investment and financial advice; underwriting and acting as an
insurance agent for certain types of credit-related insurance;  leasing property
on a full-payout,  non-operating basis; selling money orders,  travelers' checks
and United States Savings Bonds; real estate and personal  property  appraising;
providing  tax  planning  and  preparation  services;  and,  subject  to certain
limitations, providing securities brokerage services for customers.

Effective with the enactment of the  Gramm-Leach-Bliley Act (the "G-L-B Act") on
November  12,  1999,  bank  holding   companies   whose  financial   institution
subsidiaries  are well  capitalized  and  well  managed  and  have  satisfactory
Community  Reinvestment  Act  records  can  elect to become  "financial  holding
companies"  which will be  permitted  to engage in a broader  range of financial
activities  than are currently  permitted to bank holding  companies.  Financial
holding companies are authorized to engage in, directly or indirectly, financial
activities.  A  financial  activity  is an activity  that is: (i)  financial  in
nature;  (ii)  incidental to an activity  that is financial in nature;  or (iii)
complementary  to a  financial  activity  and that  does  not pose a safety  and
soundness  risk. The G-L-B Act includes a list of activities  that are deemed to
be  financial  in nature.  Other  activities  also may be decided by the Federal
Reserve  Board to be  financial  in nature or  incidental  thereto  if they meet
specified criteria.  A financial holding company that intends to engage in a new
activity  to acquire a company to engage in such an activity is required to give
prior  notice to the FRB. If the  activity is not either  specified in the G-L-B
Act as being a financial  activity or one that the FRB has determined by rule or
regulation to be financial in nature, the prior approval of the FRB is required.

The Maryland  Financial  Institutions Code prohibits a bank holding company from
acquiring  more than 5% of any class of voting  stock of a bank or bank  holding
company without the approval of the Commissioner of Financial  Regulation except
as  otherwise  expressly  permitted by federal law or in certain  other  limited
situations.  The Maryland Financial Institutions Code additionally prohibits any
person from acquiring  voting stock in a bank or bank holding company without 60
days' prior notice to the  Commissioner if such acquisition will give the person
control of 25% or more of the voting stock of the bank or bank  holding  company
or will  affect the power to direct or to cause the  direction  of the policy or
management  of the bank or bank  holding  company.  Any doubt  whether the stock
acquisition  will affect the power to direct or cause the direction of policy or
management  shall be resolved in favor of  reporting  to the  Commissioner.  The
Commissioner may deny approval of the acquisition if the Commissioner determines
it to be  anti-competitive  or to threaten  the safety or soundness of a banking
institution. Voting stock acquired in violation of this statute may not be voted
for five years.

DIVIDENDS.  The FRB  has  issued  a  policy  statement  on the  payment  of cash
dividends by bank holding companies,  which expresses the FRB's view that a bank
holding  company should pay cash dividends only to the extent that the company's
net income for the past year is sufficient to cover both the cash  dividends and
a rate of earning retention that is consistent with the company's capital needs,
asset quality and overall  financial  condition.  The FRB also indicated that it
would be inappropriate for a company  experiencing serious financial problems to
borrow funds to pay dividends.  Furthermore,  under the prompt corrective action
regulations  adopted by the FRB pursuant to


                                       20
<PAGE>

FDICIA, the FRB may prohibit a bank holding company from paying any dividends if
the holding company's bank subsidiary is classified as "undercapitalized".

Bank holding  companies are required to give the FRB prior written notice of any
purchase  or  redemption  of its  outstanding  equity  securities  if the  gross
consideration  for the  purchase  or  redemption,  when  combined  with  the net
consideration paid for all such purchases or redemptions during the preceding 12
months, is equal to 10% or more of the their consolidated retained earnings. The
FRB may  disapprove  such a purchase or  redemption  if it  determines  that the
proposal  would  constitute  an unsafe or unsound  practice or would violate any
law,  regulation,  FRB order, or any condition  imposed by, or written agreement
with, the FRB.

CAPITAL REQUIREMENTS.  The FRB has established capital requirements,  similar to
the capital  requirements  for state  member  banks  described  above,  for bank
holding  companies  with  consolidated  assets of $150  million  or more.  As of
December 31, 2001,  the  Company's  levels of  consolidated  regulatory  capital
exceeded the FRB's minimum requirements.

PERSONNEL

As of December 31, 2001,  the Bank had 84 full-time  employees  and 14 part-time
employees.  The  employees  are  not  represented  by  a  collective  bargaining
agreement. The Bank believes its employee relations are good.

ITEM 2.  PROPERTIES

The following  table sets forth the location of the Bank's  offices,  as well as
certain  additional  information  relating to these  offices as of December  31,
2001.

<TABLE>
<CAPTION>
                                     YEAR
                                   FACILITY                    LEASED              APPROXIMATE
 OFFICE                            COMMENCED                     OR                  SQUARE
LOCATION                           OPERATION                    OWNED                FOOTAGE
--------                           ---------                   -------            ------------
<S>                                  <C>                        <C>                  <C>
MAIN OFFICE
3035 Leonardtown Road                1974                       Owned                16,500
Waldorf, Maryland

BRANCH OFFICES
22730 Three Notch Rd.                1992                       Owned                 2,500
California, Maryland

25395 Point Lookout Rd.              1961                       Owned                 2,500
Leonardtown, Maryland

101 Drury Drive                      2001                       Owned                 2,645
La Plata, Maryland

10321 Southern Md. Blvd.             1991                      Leased                 1,400
Dunkirk, Maryland

8010 Matthews Road                   1996                       Owned                 2,500
Bryans Road, Maryland

20 St. Patrick's Drive (1)           1998                   Leased (Land)             2,840
Waldorf, Maryland                                         Owned (Building)
</TABLE>

                                       21
<PAGE>
<TABLE>
<CAPTION>
                                     YEAR
                                   FACILITY                    LEASED              APPROXIMATE
 OFFICE                            COMMENCED                     OR                  SQUARE
LOCATION                           OPERATION                    OWNED                FOOTAGE
--------                           ---------                  --------            ------------
<S>                                  <C>                      <C>                     <C>
10195 Berry Road                     1999                      Leased                  600
Waldorf, Maryland

30165 Three Notch Road (2)           2001                     Leased (Land)             N/A
Charlotte Hall, Maryland
<FN>
----------------
(1)  The Bank  purchased the location in 1998. The building is owned by the Bank
     with the land on a lease basis.
(2)  The Bank has leased the land on a long term basis and is operating out of a
     temporary   facility   while  the   permanent   building  is   constructed.
     Construction is expected to be completed in the second quarter of 2002.
</FN>
</TABLE>


ITEM 3.  LEGAL PROCEEDINGS
--------------------------

Neither  the  Company,  the Bank,  nor any  subsidiary  is  engaged in any legal
proceedings of a material nature at the present time. From time to time the Bank
is a party to legal proceedings in the ordinary course of business.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter of the fiscal year ended December 31, 2001.


                                     PART II

ITEM 5. MARKET FOR THE  REGISTRANT'S  COMMON STOCK AND RELATED  SECURITY  HOLDER
        MATTERS
--------------------------------------------------------------------------------

MARKET INFORMATION. Beginning in the first quarter of 2002, bid and asked quotes
and last sale information became available for the Company's common stock on the
OTC Bulletin  Board under the symbol  "TCFC." During fiscal years 2001 and 2000,
there was no  established  trading market for the Common Stock and bid and asked
quotes  were not  regularly  available.  The Company  has  maintained  a list of
persons who have expressed an interest in buying or selling the Common Stock and
has made this information available to persons seeking to sell or buy shares, as
the case may be, and  believes  that most  trading  activity in the Common Stock
resulted from these  referrals.  During 2001, a total of 28,698  shares  traded,
with a high  price of $32.00  and a low price of $25.00.  The  weighted  average
price  was  $27.27.  The  Company  expects  to  continue  maintaining  a list of
potential buyers and sellers.

HOLDERS.  The number of  stockholders at December 31, 2001 was 547 and the total
outstanding shares were 756,805.

DIVIDENDS.  The Company has paid annual cash dividends since 1994. During fiscal
year  2001 and  2000,  the  Company  paid cash  dividends  of $0.40  and  $0.30,
respectively.  On January 22, 2002, the Board of Directors  declared a $0.50 per
share cash dividend to be  distributed  on April 8, 2002 to holders of record as
of March 25, 2002.

The  Company's  ability  to  pay  dividends  is  governed  by the  policies  and
regulations  of the FRB which  prohibit the payment of dividends  under  certain
circumstances  involving  the bank holding  company's  financial  condition  and
capital  adequacy.  The Company's  ability to pay dividends is also dependent on
the receipt of dividends from the Bank.

                                       22
<PAGE>

Federal  regulations impose certain  limitations on the payment of dividends and
other capital  distributions by the Bank. The Bank's ability to pay dividends is
governed by the Maryland Financial  Institutions Code and the regulations of the
FRB. Under the Maryland Financial Institution Code, a Maryland bank (1) may only
pay dividends from undivided  profits or, with prior  regulatory  approval,  its
surplus  in excess of 100% of  required  capital  stock and (2) may not  declare
dividends  on its common  stock  until its  surplus  funds  equals the amount of
required  capital  stock or, if the  surplus  fund does not equal the  amount of
capital stock, in an amount in excess of 90% of net earnings.

Without the  approval  of the FRB, a state  member bank may not declare or pay a
dividend if the total of all dividends  declared during the year exceeds its net
income  during the current  calendar  year and retained net income for the prior
two years. The Bank is further prohibited from making a capital  distribution if
it would not be adequately capitalized thereafter. In addition, the Bank may not
make a capital  distribution  that would  reduce its net worth  below the amount
required to maintain the liquidation  account established for the benefit of its
depositors at the time of its conversion to stock form.

EQUITY  COMPENSATION  PLANS.  The Company has adopted a variety of  compensation
plans  pursuant to which  equity may be awarded to  participants  including  the
Company's  1995 Stock Option and  Incentive  Plan and the 1995 Stock Option Plan
for Non-Employee  Directors.  The Bank's Executive  Incentive  Compensation Plan
provides for grants of options under the 1995 Stock Option and Incentive Plan if
certain performance criteria are met.

The following table sets forth certain information with respect to the Company's
Equity Compensation Plans.
<TABLE>
<CAPTION>
                                                                                                 NUMBER OF SECURITIES REMAINING
                                                                                                  AVAILABLE FOR FUTURE ISSUANCE
                            NUMBER OF SECURITIES TO BE ISSUED       WEIGHTED-AVERAGE EXERCISE       UNDER EQUITY COMPENSATION
                              UPON EXERCISE OF OUTSTANDING            PRICE OF OUTSTANDING        PLANS (EXCLUDING SECURITIES
PLAN CATEGORY                 OPTIONS, WARRANTS AND RIGHTS        OPTIONS, WARRANTS AND RIGHTS      REFLECTED IN COLUMN (a))
-------------                 ----------------------------        ----------------------------      ------------------------
<S>                                      <C>                                 <C>                                <C>
Equity compensation plans
  approved by security holders           79,469                              $18.08                             58,839

Equity compensation plans not
  approved by security holders (1)       20,210                              $22.60                              6,642

      Total (2)
<FN>
----------
(1)  Consists of the 1995 Stock  Option Plan for  Non-Employee  Directors  which
     provides grants of non-incentive options to directors who are not employees
     of the Company or its  subsidiaries.  Options are granted under the plan at
     an exercise price equal to their fair market value at the date of grant and
     have a term of ten  years.  Options  are  generally  exercisable  while  an
     optionee serves as a director or within one year thereafter.
(2)  The 1995 Stock  Option and  Incentive  Plan and 1995 Stock  Option Plan for
     Non-Employee  Directors each provide for a proportionate  adjustment to the
     number of shares reserved  thereunder in the event of a stock split,  stock
     dividend reclassification, recapitalization or similar event.
</FN>
</TABLE>

                                       23
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA
--------------------------------

The  following  table  presents  consolidated  selected  financial  data for the
Company and its  subsidiaries for each of the periods  indicated.  Dividends and
earnings per share have been adjusted to give retroactive effect to stock splits
and stock dividends accounted for as stock splits.
<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                -------------------------------------------------------------
                                                  2001           2000         1999         1998        1997
                                                --------       --------     --------     --------    --------
                                                        (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                                            <C>          <C>          <C>          <C>          <C>
OPERATIONS DATA:
Net Interest Income.........................   $   9,757    $    8,862   $    8,412   $    8,125   $    7,616
Provision for Loan Losses...................         360           360          240          240          240
Noninterest Income..........................       1,402         1,373        1,271        1,421          931
Noninterest Expense.........................       6,995         6,332        6,276        5,467        4,877
Net Income..................................       2,486         2,336        2,153        2,382        2,057

SHARE DATA:
Basic Net Income Per Common Share...........   $    3.24    $     2.98   $     2.75   $     3.00   $     2.53
Diluted Net Income Per Common Share.........        3.11          2.85         2.59         2.79         2.37
Cash Dividends Paid  Per  Common Share......        0.40          0.30         0.20        0.125         0.10
Weighted Average Common
   Shares  Outstanding:
        Basic...............................     766,927       784,605      782,950      793,458      811,694
        Diluted.............................     798,787       821,139      832,283      853,145      867,503

FINANCIAL CONDITION DATA:
Total Assets................................   $ 261,957    $  248,339   $  222,897   $  206,863   $  191,188
Loans Receivable, Net.......................     193,450       172,090      146,710      132,646      121,867
Total Deposits..............................     183,117       167,806      155,742      151,815      142,276
Long and Short Term Debt....................      50,463        54,951       44,798       33,434       29,202
Total Stockholders' Equity..................      25,586        23,430       21,115       20,975       19,086

PERFORMANCE RATIOS:
Return on Average Assets....................        0.97%         1.00%        1.00%        1.20%        1.13%
Return on Average Equity....................       10.09         10.65        10.23        11.87        11.53
Net Interest Margin.........................        4.02          3.98         4.11         4.21         4.21
Efficiency Ratio............................       62.68         61.86        64.81        57.27        57.07
Dividend Payout Ratio.......................       12.44         10.13         7.29         4.10         3.62

CAPITAL RATIOS:
Average Equity to Average
  Assets....................................        9.64%         9.37%        9.79%       10.10%        9.79%
Leverage Ratio..............................        9.64          9.61         9.86        10.28         9.68
Total Risk-Based Capital Ratio..............       14.08         13.53        17.23        18.27        17.38

ASSET QUALITY RATIOS:
Allowance for Loan Losses to
  Total Loans...............................        1.16%         1.10%        1.11%        1.14%        1.05%
Nonperforming Loans to Total Loans..........        0.12          0.06         0.26         0.34         0.26
Allowance for Loan Losses to
  Nonperforming Loans.......................      996.07       1770.55       424.94       331.18       404.32
Net Charge-offs to Average Loans............        0.01          0.05         0.09         0.01         0.04

</TABLE>

                                       24
<PAGE>

ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
--------------------------------------------------------------------------------

OVERVIEW

Since its  conversion to a commercial  bank charter in 1997, the Bank has sought
to increase  total assets as well as the  percentage  of assets  represented  by
certain  targeted  loan  types.  The Bank feels that its  ability to offer fast,
flexible and local  decision-making  in the commercial,  commercial real estate,
and consumer loan areas will continue to attract  significant new loans and spur
asset growth.  Since December 31, 1997,  total loan assets have increased by $71
million  or 58.7%,  with  increases  concentrated  in  commercial  real  estate,
commercial,  and consumer lending. The Bank's local focus and targeted marketing
is also  directed  towards  increasing  its  balances of consumer  and  business
deposit  accounts such as  interest-bearing  and  noninterest  bearing  checking
accounts,  money market accounts, and other  transaction-oriented  accounts. The
Bank  believes  that  increases  in these  account  types will lessen the Bank's
dependence on time deposits such as certificates of deposit to fund loan growth.

For the year  2001,  the  Company  earned  $2.5  million,  an  increase  of $149
thousand,  or 6.4%, over 2000.  Earnings were positively  affected by the Bank's
continued   success  in  building  its  loan  portfolio  while  controlling  its
non-performing   loans.  The  significantly   lower  interest  rate  environment
positively  affected the Bank's  ability to earn  noninterest  income in certain
areas.  Noninterest  expense increased by 10.5% primarily in increased  expenses
for marketing, occupancy, and other expenses.

FORWARD-LOOKING STATEMENTS

When used in this  discussion  and elsewhere in this Annual Report on Form 10-K,
the words or phrases "will likely  result," "are expected to," "will  continue,"
"is anticipated,"  "estimate,"  "project" or similar expressions are intended to
identify  "forward-looking   statements"  within  the  meaning  of  the  Private
Securities  Litigation  Reform Act of 1995. The Company  cautions readers not to
place undue reliance on any such forward-looking statements, which speak only as
of the date made, and to advise readers that various factors, including regional
and national economic conditions,  unfavorable  judicial decisions,  substantial
changes in levels of market  interest  rates,  credit and other risks of lending
and investment  activities and competitive  and regulatory  factors could affect
the Company's financial performance and could cause the Company's actual results
for future periods to differ materially from those anticipated or projected.

The Company does not undertake  and  specifically  disclaims  any  obligation to
update any  forward-looking  statements to reflect  occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2001,  2000
AND 1999

GENERAL. For the year ended December 31, 2001, the Company reported consolidated
net income of  $2,485,535  ($3.24  basic and $3.11 fully  diluted  earnings  per
share) compared to consolidated net income of $2,336,196  ($2.98 basic and $2.85
fully  diluted  earnings per share) for the year ended  December  31, 2000,  and
consolidated  net income of  $2,153,490  ($2.75  basic and $2.59  fully  diluted
earnings per share) for the year ended  December  31, 1999.  The increase in net
income for 2001 compared to 2000 was  attributable to several factors  including
growth in net interest income and improved  noninterest  income.  These positive
developments  were  partially  offset by increases in  noninterest  expenses and
income tax expenses.  For the year ended December 31, 2001, net interest  income
was  $9,756,865  compared to $8,862,072 for the year ended December 31, 2000, an
increase of $894,793 or 10.1%.  The Company  also  increased  total  noninterest
income to $1,401,520 in 2001 from  $1,372,928 in 2000, an increase of $28,532 or
2.1%.  Noninterest  expenses increased to $6,994,500 for the year ended December
31, 2001, compared to $6,331,864 an increase of $662,636 or 10.5%. Income before
income  taxes  increased  to  $3,803,885  for the year ended  December 31, 2001,
compared to  $3,543,196  for the year ended  December 31,  2000,  an increase of
$260,689 or 7.4%.  Income tax  expense for 2001  increased  to  $1,318,350  from
$1,207,000 for the year ended December 31, 2000.

                                       25
<PAGE>

For the year ended  December  31,  2000,  net  interest  income  was  $8,862,072
compared to  $8,412,151  for the year ended  December 31,  1999,  an increase of
$449,921  or 5.4%.  This  increase  was  partially  offset by an increase in the
provision  for loan  losses to  $360,000  for the year ended  December  31, 2000
compared to $240,000 for 1999,  an increase of $120,000 or 50%. The Company also
increased  total  noninterest  income to $1,372,928  in 2000 from  $1,271,464 in
1999,  an  increase  of  $101,524 or 8.0%.  Noninterest  expenses  increased  to
$6,331,864  for the year ended  December 31,  2000,  compared to  $6,276,125  an
increase of $55,739 or 0.9%.  Income before income taxes increased to $3,543,196
for the year ended December 31, 2000,  compared to $3,167,490 for the year ended
December 31, 1999, an increase of $375,706 or 11.9%.

NET INTEREST  INCOME.  The primary  component of the Company's net income is its
net interest income which is the difference  between income earned on assets and
interest  paid on the deposits and  borrowings  used to fund them.  Net interest
income is  determined  by the spread  between the yields earned on the Company's
interest-earning  assets and the rates paid on  interest-bearing  liabilities as
well as the  relative  amounts of such  assets  and  liabilities.  Net  interest
income, divided by average interest-earning assets, represents the Company's net
interest margin.

Consolidated  net  interest  income for the year  ended  December  31,  2001 was
$9,756,865  compared  to  $8,862,072  for the year ended  December  31, 2000 and
$8,412,151 for the year ended  December 31, 1999.  The $894,793  increase in the
most recent year was due to an increase of $225,114 in interest  income combined
with a decrease of $669,679 in  interest  expense for the same  period.  For the
year ended  December  31,  2000  compared  to the prior  year,  interest  income
increased  by  $2,436.232   partially  offset  by  an  increase  in  expense  of
$1,986,311.  Changes in the components of net interest  income due to changes in
average  balances of assets and liabilities  compared to changes in net interest
income  caused by changes in  interest  rates are  presented  in the rate volume
analysis below.

During 2001, the Company's interest rate spread increased slightly because;  the
Bank was able to decrease the amount and relative share of its assets devoted to
investments and move these assets into higher yielding loans.  The Bank was also
able to continue  its shift from lower  yielding  loan types to higher  yielding
loans  types.  The Bank was able to cut costs on  borrowing  and  deposit  costs
commensurate with decreases in loan rates, and the Bank was able to increase the
share of its funding provided by deposits as opposed to borrowings.

The  following  table  presents  information  on  the  average  balances  of the
Company's interest-earning assets and interest-bearing  liabilities and interest
earned or paid thereon for the past three  fiscal  years.  Average  balances are
computed on the basis of month-end balances.

<TABLE>
<CAPTION>
                                                                       FOR THE YEAR ENDED DECEMBER 31,
                                    ------------------------------------------------------------------------------------------
                                                2001                            2000                             1999
                                    ------------------------------    -------------------------   ----------------------------
                                                           AVERAGE                      AVERAGE                        AVERAGE
                                    AVERAGE                 YIELD/    AVERAGE            YIELD/   AVERAGE               YIELD/
                                    BALANCE   INTEREST      COST      BALANCE  INTEREST  COST     BALANCE   INTEREST    COST
                                    -------   --------     -------    -------  -------- -------   -------   --------   -------
                                                                               (DOLLARS IN THOUSANDS)
<S>                                 <C>        <C>          <C>     <C>       <C>        <C>     <C>        <C>        <C>
Interest-earning assets:
  Loan portfolio (1).............   $184,370   $15,223      8.26%   $159,989  $13,950    8.72%   $138,140   $ 11,563   8.37%
  Cash and investment securities.     58,276     3,291      5.65      62,673    4,340    6.92      66,379      4,290   6.46
                                    --------   -------              --------  -------            --------   --------
     Total interest-earning
       assets....................    242,646    18,514      7.63     222,662   18,290    8.21     204,519     15,853   7.75
                                    --------   -------     -----    --------  -------  ------    --------   --------  -----
Interest-bearing liabilities:
  Savings deposits and escrow....   $175,919   $ 5,935      3.37%   $160,324  $ 6,315    3.94%   $154,699   $  5,529   3.59%
  FHLB advances and other
    borrowings...................    52,387      2,822      5.39      49,664    3,113    6.26      35,859      1,912   5.33
                                    -------    -------              --------  -------            --------   --------
     Total interest-bearing
       liabilities...............   $228,306     8,757      3.84    $209,988    9,428    4.49    $190,558      7,441   3.92
                                    ========   -------     -----    ========  -------            ========   --------  -----
Net interest income..............              $ 9,757                        $ 8,862                       $  8,412
                                               =======                        =======                       ========
Interest rate spread.............                           3.79%                        3.72%                         3.83%
                                                           =====                        =====                         =====
Net yield on interest-earning
  assets.........................                          4.02%                        3.98%                         4.11%
                                                           =====                        =====                         =====
Ratio of average interest-
  earning assets to average
  interest-bearing liabilities...                         106.3%                       106.0%                        107.3%
                                                          =====                        =====                         =====
<FN>
----------
(1)  Average balance includes non-accrual loans.
</FN>
</TABLE>

                                       26
<PAGE>

The table below sets forth  certain  information  regarding  changes in interest
income and  interest  expense of the Bank for the  periods  indicated.  For each
category of interest-earning asset and interest-bearing  liability,  information
is provided on changes attributable to: (1) changes in volume (changes in volume
multiplied by old rate);  and (2) changes in rate (changes in rate multiplied by
old volume). Changes in rate-volume (changes in rate multiplied by the change in
volume) have been allocated to changes due to volume.
<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                               -------------------------------------------------------------
                                                   2001    VS.     2000            2000      VS.      1999
                                               --------------------------       ----------------------------
                                                   INCREASE (DECREASE)              INCREASE (DECREASE)
                                                         DUE TO                            DUE  TO
                                               --------------------------       ----------------------------
                                               VOLUME     RATE      TOTAL       VOLUME      RATE     TOTAL
                                               ------     ----      -----       ------      ----     -------
                                                                      (IN THOUSANDS)
<S>                                            <C>       <C>       <C>           <C>       <C>      <C>
Interest income:
   Loan portfolio...........................   $ 2,126   $  (853)  $ 1,273       $ 1,905   $   482  $  2,387
   Interest-earning cash and
     investment portfolio...................      (304)     (744)   (1,048)         (257)      306        49
                                               --------  --------  --------      --------  -------  --------
Total interest-earning assets...............   $ 1,822   $(1,597)  $   225       $ 1,648   $   788  $  2,436
                                               =======   =======   =======       =======   =======  ========

Interest expense:
   Savings deposits and escrow..............   $   614   $  (993)  $  (379)      $   222   $   564  $    786
   FHLB advances and other
     borrowings.............................       170      (460)     (290)          864       336     1,200
                                               -------   --------  --------      -------   -------  --------
Total interest-bearing liabilities..........   $   784   $(1,453)  $  (669)      $ 1,086   $   900  $  1,986
                                               =======   ========  ========      =======   =======  ========
</TABLE>


PROVISION FOR LOAN LOSSES. Provision for loan losses for the year ended December
31, 2001 was  $360,000  compared to $360,000  and $240,000 for December 31, 2000
and 1999. The higher provision for loan losses in 2001 and 2000 is reflective of
the  increases  in the size of the Bank's loan  portfolio  as well as  increased
emphasis on certain loan types which have  inherently  higher  credit risks than
residential first mortgage lending.  At December 31, 2001 the allowance for loan
loss equaled 996% of non-accrual  and past due loans compared to 1,771% and 425%
at December 31, 2000 and 1999, respectively.  During the year ended December 31,
2001, the Company  recorded net  charge-offs  of $8 thousand  (0.004% of average
loans)  compared  to $83  thousand  (0.05% of average  loans) and $127  thousand
(0.09% of average loans) in net charge-offs  during the years ended December 31,
2000 and 1999.

NONINTEREST  INCOME.  Noninterest  income  increased to $1,401,520  for the year
ended December 31, 2001 compared to $1,372,988,  for the prior year, an increase
of 2.1%.  Noninterest income for the year ended December 31, 2000 represented an
increase  of 8.0% from the  December  31, 1999 total of  $1,271,464.  Changes in
noninterest  income  over the past  three  years  have  been the  result of wide
fluctuations in certain  noninterest income categories,  (gain on sale of loans,
gain on sale of investments,  loan fees) and an increase in service charges from
1999 to 2000.  Gain on sale of investments  increased to $184,704 in 2000 from a
loss of $605 in 1999.  In 2001,  the Company had no  investment  sales or income
from  sales.  Gain on sale of loans  held for  sale  has  been  highly  variable
reflecting the overall interest rate environment.  As rates decrease, the Bank's
volume of mortgage lending which is fixed rate increases, which in turn provides
a higher volume of loan sales and gains. Mortgage interest rates moved higher in
2000 from 1999 levels which caused a decreased  gain on sales of mortgage  loans
to  $85,716  in 2000,  down  from  $238,215  in 1999.  In 2001,  interest  rates
decreased  from 2000  levels  and  income  from gain on sale of  mortgage  loans
increased to $187,304.  In percentage  terms gain on sale of loans held for sale
fell 64%  from  1999 to 2000  and  increased  by 119%  from  2000 to 2001.  Loan
appraisal,  credit and miscellaneous  charges followed a similar pattern,  these
charges decreased from $182,494 in 1999 to $76,326 in 2000, a decrease of 58.2%.
From 2000 to 2001,  these  charges  increased to $226,641 an increase of 196.9%.
Service  charges  and fees are  primarily  generated  by the  Bank's  ability to
attract and retain transaction-based deposit accounts.  Service charges and fees
declined  slightly to $953,496 for the year ended  December 31, 2001 as compared
to $996,884 and $811,991 in the two prior years. The decrease for the year ended
December  31, 2001 from the prior year was  $43,388,  or 4.4% while the increase
for the year ended December 31, 1999 from the prior year was $184,893, or 22.8%.
The Company hopes to increase its service  charge and fee revenues in the future
by  increasing  the  level  of  transaction-based   accounts.   Finally,   other


                                       27
<PAGE>

noninterest  income declined  slightly from 1999 to 2000 and increased from 2000
to 2001.  For the year ended  December 31, 2001,  other  noninterest  income was
$34,079, an increase from the prior year total of $29,358.

NONINTEREST EXPENSES.  Noninterest expenses for the year ended December 31, 2001
totaled $6,994,500, an increase of $662,636 or 10.5% from the prior year. Salary
and  employee  benefits  increased  by 4.9% to  $3,821,330  for the  year  ended
December 31, 2001 compared to $3,643,865  for the prior year. The small increase
reflects a stabilization  in the size of the Company's  workforce,  an effort by
management to control certain  discretionary  employee costs such as the cost of
the Company's Employee Stock Ownership Plan ("ESOP") program and other measures.
Occupancy expense increased to $689,575 compared to $615,809 and $540,667 in the
two prior years. This increase was due to certain needed repairs and maintenance
at several of the  Company's  locations as well as the opening of the  Charlotte
Hall branch.  ATM and deposit  expenses  decreased to $254,176 for the year 2001
from  $340,534  and $287,178 for the prior two years.  Data  processing  expense
increased  to  $291,399  from the prior year total of  $255,792,  an increase of
13.9%. As discussed previously,  the Bank intends to convert its core processing
system  in 2002  from its  current  provider.  The Bank  anticipates  that  this
conversion  will increase  certain  related costs  including data processing and
other  costs above 2001  levels.  The  decrease  in ATM and deposit  expenses is
reflective of certain  operating changes made to decrease costs. The increase in
data processing  expense is reflective of the Company's  additional  transaction
based deposit  accounts and an increase in overall deposit  volume.  Advertising
decreased  from 2000 levels to  $301,975  for the year ended  December  31, 2001
compared  to  $246,619  and  $280,044  in  the  two  prior  years.  The  Company
anticipates  that  noninterest  expense  will  increase  during  2002 due to the
opening of a new branch in the fourth quarter of 2001.

INCOME TAX  EXPENSE.  During the year  ended  December  31,  2001,  the  Company
recorded income tax expense of $1,318,350 compared to expenses of $1,207,000 and
$1,014,000  in the two prior years.  The  Company's  effective tax rates for the
years ended  December  31,  2001,  2000,  and 1999 were 34.7%,  34.1% and 32.0%,
respectively.   The  increase  in  the  tax  rate  during  2001  was   primarily
attributable  to an increase in the state  income tax burden.  In 2000 and 1999,
taxes were substantially  reduced because income earned on investment securities
held  by  the  Bank's  passive  investment  corporation  subsidiary,  Tri-County
Investment  Corporation  ("TCIC"),  was not subject to state  income tax. In the
current year,  reductions in the assets invested in TCIC as well as the interest
rate earned on these  investments  have  reduced the amount of income  sheltered
from state income tax, increasing the effective tax rate.

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2001 AND 2000

The Company's total assets increased $13,617,834, or 5.5%, to $261,957,290 as of
December 31, 2001 from $248,339,456 at December 31, 2000. The increase in assets
was  primarily  due  to  an  increase  in  the  loan  portfolio  which  grew  to
$193,450,011  at December 31, 2001 from  $172,090,088  at December 31, 2000. The
increase in the loan portfolio were  concentrated  in the loan types targeted by
management in its long-term business plan to increase the financial  performance
of the  Company.  The  Company  experienced  its  greatest  loan  growth  in the
commercial  mortgage loan portfolio which grew  $23,390,780 or 55.4% during 2001
to  $65,616,917.  Commercial  mortgages  constituted  33.4%  of  total  loans at
December 31, 2001. The Company also  registered  strong growth in its commercial
loan portfolios  which grew 23%.  Although  residential  first mortgage  lending
continues to be a major portion of the Company's loan portfolio, it has declined
as a percentage of the loan  portfolio  from 38.9% at December 31, 2000 to 31.3%
at December 31, 2001,  while  decreasing  in dollar terms for the same period to
$61,429,647 from $67,975,177 at December 31, 2000.

Investments and  interest-bearing  deposits totaled  $54,676,804 at December 31,
2001 compared to $67,586,227 for December 31, 2000. The decrease of $12,909,423,
or 19.1%, is the result of principal paydowns on the portfolio,  which increased
over the prior year due to the lower  interest rate  environment.  The principal
paydowns were  partially  offset by increased  market  values of securities  and
earnings on the portfolio. Management expects that the investment portfolio will
continue to be a smaller portion of the Bank's asset  composition as the Company
will  use  principal  paydowns  and  calls  to  increase  the  size of its  loan
portfolio.

Premises and equipment  increased $937,417 primarily due to upgrades of computer
equipment and offices,  the opening of an additional  branch, and the relocation
of one branch  from leased  premises  to a  Bank-owned  facility.  Other  assets
increased  $863  thousand  primarily  due to an increase in certain  prepaid tax
accounts. Foreclosed real

                                      28
<PAGE>

estate  increased  primarily as the result of the single large  development loan
discussed previously being acquired by deed in lieu of foreclosure.

Deposits increased to $183,116,534 at December 31, 2001 compared to $167,805,999
for the prior  year.  The total  increase  of 9.1% was  concentrated  in certain
transaction-based account types.  Noninterest-bearing  demand deposits increased
to $17,738,065 at December 31, 2001 from the prior year's total of  $12,537,649,
an increase of $5,200,416, or 41.5%.  Interest-bearing demand deposits increased
to $20,842,088 at year end compared with  $20,551,420,  an increase of $290,668,
or 1.4%.  Money market  deposits  increased to  $53,807,885 at December 31, 2001
from  $44,965,316  at  December  31, 2000 for the prior year end, an increase of
$8,842,569,  or 19.7%.  Savings  deposits  increased  by  $1,815,057  or 9.8% to
$20,367,634 from $18,552,577. These increases in deposit balances were offset by
declines in certificates of deposit to $70,360,762  from  $71,199,037 a decrease
of $838,275, or 1.2%.

The Company used the increases in deposits coupled with shifting assets from the
investment  portfolio  to fund growth in the loan  portfolio.  The Company  also
decreased overall  borrowings and shifted most short term borrowings into longer
term debt to attempt to lock in lower  interest  rates during  2001.  Short term
borrowings declined to $1,813,317 from $13,550,903,  a decline of $11,737,586 or
86.6%.  Long-term debt increased to $48,650,000 from  $41,400,000,  a decline of
$7,250,000 or 17.5%.

The Company experienced a $2,156,636,  or 9.2%, increase in stockholders' equity
for the year ended December 31, 2001. The increase in  stockholders'  equity was
attributable  to the retention of earnings  from the period less cash  dividends
combined with  comprehensive  income of $670,442,  option  exercises and smaller
amounts of ESOP activity.  These  increases in equity were  partially  offset by
repurchases of common stock totaling $673,920.

ASSET/LIABILITY MANAGEMENT

Net interest income,  the primary component of the Company's net income,  arises
from the difference between the yield on interest-earning assets and the cost of
interest-bearing  liabilities  and  the  relative  amounts  of such  assets  and
liabilities.  The Company manages its assets and liabilities by coordinating the
levels of and gap between  interest-rate  sensitive  assets and  liabilities  to
control  changes in net interest  income and in the economic value of its equity
despite changes in market interest rates.

Among other tools used to monitor  interest  rate risk is a "gap"  report  which
measures the dollar difference between the amount of interest-earning assets and
interest-bearing  liabilities  subject to repricing  within a given time period.
Generally,  during a period of rising  interest  rates,  a negative gap position
would adversely affect net interest income, while a positive gap would result in
an  increase  in net  interest  income,  while,  conversely,  during a period of
falling  interest  rates,  a negative  gap would  result in an  increase  in net
interest income and a positive gap would adversely  affect net interest  income.
The following  sets forth the Bank's  interest rate  sensitivity at December 31,
2001:


                                       29
<PAGE>
<TABLE>
<CAPTION>
                                                                                 OVER 1
                                                              OVER 3 TO         THROUGH 5         OVER 5
                                            0-3 MONTHS        12 MONTHS           YEARS            YEARS
                                            ----------        ---------           -----            -----
                                                                (AMOUNTS IN THOUSANDS)
<S>                                         <C>               <C>               <C>              <C>
Assets:
Cash and due from banks...................  $       693       $        --       $       --       $        --
Interest-bearing deposits.................        7,678                --               --                --
Securities................................        8,137             7,804           15,617            12,405
Loans held for sale.......................        2,354                --               --                --
Loans.....................................       43,715            19,887           58,120            74,767
                                            -----------       -----------       ----------       -----------

Total Assets..............................  $    62,577       $    27,691       $   73,737       $    87,172
                                            ===========       ===========       ==========       ===========

Liabilities:
Noninterest bearing deposits..............  $    17,738       $        --       $       --       $        --
Interest-bearing demand deposits..........       20,842                --               --                --
Money Market Deposits.....................       53,808                --               --                --
Savings...................................       20,368                --               --                --
Certificates of Deposit...................       18,573            24,285           27,503                --
Short-term debt...........................        1,813                --               --                --
Long-term debt............................           --             6,400           17,250            25,000
                                            -----------       -----------       ----------       -----------

Total Liabilities.........................  $   133,142       $    30,685       $   44,753       $    25,000
                                            ===========       ===========       ==========       ===========

Gap.......................................  $   (70,565)      $    (2,993)      $   28,984       $    62,172
Cumulative Gap............................  $   (70,565)      $   (73,558)      $  (44,574)      $    17,598
Cumulative Gap as % of total assets.......       (26.94)%          (28.08)%         (17.02)%            6.72%
</TABLE>

The foregoing  analysis assumes that the Bank's assets and liabilities move with
rates at  their  earliest  repricing  opportunities  based  on  final  maturity.
Mortgage-backed securities are assumed to mature during the period in which they
are  estimated to prepay and it is assumed that loans and other  securities  are
not called  prior to  maturity.  Certificates  of deposit and IRA  accounts  are
presumed to reprice at maturity. NOW and savings accounts are assumed to reprice
within three months  although it is the Company's  experience that such accounts
may be less sensitive to changes in market rates.

LIQUIDITY AND CAPITAL RESOURCES

The Company  currently has no business  other than that of the Bank and does not
currently have any material funding commitments. The Company's principal sources
of liquidity are cash on hand and dividends  received from the Bank. The Bank is
subject to various regulatory restrictions on the payment of dividends.

The Bank's  principal  sources of funds for  investments  and operations are net
income,  deposits from its primary market area,  principal and interest payments
on loans,  interest received on investment securities and proceeds from maturing
investment securities. Its principal funding commitments are for the origination
or  purchase  of loans  and the  payment  of  maturing  deposits.  Deposits  are
considered  the  primary  source of funds  supporting  the  Bank's  lending  and
investment activities. The Bank also uses borrowings from the FHLB of Atlanta to
supplement  deposits.  The  amount  of FHLB  advances  available  to the Bank is
limited to the lower of 35% of Bank assets or the amount supportable by eligible
collateral  including FHLB stock,  current residential first mortgage loans, and
certain securities.

The Bank's most liquid assets are cash, cash equivalents,  and  interest-bearing
deposits  which  are  comprised  of cash on hand,  amounts  due  from  financial
institutions,  and  interest-bearing  deposits.  The  levels of such  assets are

                                       30
<PAGE>

dependent on the Bank's  operating  financing and  investment  activities at any
given time. The variations in levels of cash and cash equivalents are influenced
by deposit flows and anticipated future deposit flows.

Cash, cash equivalents,  and interest-bearing  deposits as of December 31, 2001,
totaled  $8,371,597,  an increase of  $1,750,466  (26.44%) from the December 31,
2000 total of  $6,621,131.  This  increase  was  primarily  in  interest-bearing
deposits at other financial  institutions  which totaled  $7,678,158 at December
31, 2001 compared to $5,975,314  at the end of 2000.  Cash on hand  increased to
$693,439 from $645,817 at December 31, 2000.

The  Company's  principal  sources  of cash flows are its  financing  activities
including  deposits and  borrowings  and  issuances of shares on the exercise of
stock  options or  allocations  of shares to  participant  accounts in the ESOP.
During  the year  2001,  financing  activities  provided  $9.8  million  in cash
compared  to $21.6  million  during  2000 and $14.6  million  during  1999.  The
decrease in cash flows from financing  activities  during the most recent period
was principally due to a decrease in long and short-term  borrowing  activities.
During  2001,  net  activity  in short  -term  borrowing  was a decline of $11.7
million as compared to an increase  of $152  thousand in 2000.  Net  activity in
long term borrowings, proceeds from borrowings minus principal payments provided
a net of $7.3 million in 2001 compared to $10 million in 2000. These declines in
cash flow from  borrowing  activities  was  partially  offset by an  increase in
deposit  funding  growth.  In the year ended 2000,  net deposit growth was $12.0
million,  while in 2001 net deposit growth was $15.3  million.  The Company also
receives cash from its operating  activities which provided $5.0 million in cash
during 2001, compared to cash flows of $4.1 million and $4.4 million during 2000
and 1999,  respectively.  The increase in  operating  cash flows during 2001 was
primarily due to higher sales of loans originated for resale.

The Company's principal use of cash has been in investing  activities  including
its investments in loans for portfolio,  investment securities and other assets.
During the year ended  December  31,  2001,  the  Company  used a total of $14.8
million in its investing  activities compared to $28.5 million in 2000 and $16.5
million in 1999. The principal  reason for the decline in cash used in investing
activities was an increase in the excess of the proceeds of sales,  redemptions,
and principal reductions of investments over new purchases.

Federal  banking  regulations  require  the  Company  and the  Bank to  maintain
specified levels of capital.  At December 31, 2001 the Company was in compliance
with these  requirements  with a  leverage  ratio of 9.8%,  a Tier 1  risk-based
capital ratio of 12.8% and total risk-based  capital ratio of 14.1%. At December
31,  2001,  the Bank met the  criteria  for  designation  as a  well-capitalized
depository institution under FRB regulations.

IMPACT OF INFLATION AND CHANGING PRICES

The consolidated  financial  statements and notes thereto  presented herein have
been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial  position and operating results in terms of
historical  dollars without  considering the changes in the relative  purchasing
power of money over time due to  inflation.  Unlike most  industrial  companies,
nearly all of the Company's assets and liabilities are monetary in mature.  As a
result,  interest rates have a greater impact on the Company's  performance than
do the effects of general levels of inflation. Interest rates do not necessarily
move in the same  direction  or to the same  extent  as the  prices of goods and
services.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------

Not applicable since the registrant is a small business issuer.


                                       31
<PAGE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------

The Company's financial  statements and supplementary data appear in this Annual
Report beginning on the page immediately following Item 14 hereof.

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE
--------------------------------------------------------------------------------

Not applicable.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------

The information contained under the section captioned "Proposal I -- Election of
Directors" in the Company's  definitive  proxy  statement for the Company's 2002
Annual Meeting of Stockholders (the "Proxy Statement") is incorporated herein by
reference.

The executive officers of the Company are as follows:

MICHAEL L. MIDDLETON (54 years old) is President and Chief Executive  Officer of
the  Company  and the Bank.  He joined  the Bank in 1973 and  served in  various
management  positions  until  1979 when he  became  president  of the Bank.  Mr.
Middleton  is a  Certified  Public  Accountant  and holds a Masters of  Business
Administration.  As  President  and Chief  Executive  Officer  of the Bank,  Mr.
Middleton is responsible  for the overall  operation of the Bank pursuant to the
policies and procedures  established  by the Board of Directors.  Since December
1995,  Mr.  Middleton  has served on the Board of  Directors of the Federal Home
Loan Bank of Atlanta and also serves as its Board  Representative to the Council
of Federal Home Loan Banks.

C. MARIE BROWN (59 years old) has been  employed with the Bank for over 27 years
and has served as Chief Operating  Officer since 1999.  Prior to her appointment
as Chief  Operating  Officer,  Ms. Brown served as Senior Vice  President of the
Bank.  She is a supporter of the  Handicapped  and Retarded  Citizens of Charles
County,  of  Zonta  and  serves  on  various  administrative  committees  of the
Hughesville  Baptist  Church and the board of the Charles  County Chapter of the
American Red Cross.

H.  BEAMAN  SMITH (56 years old) was the  Treasurer  of the  Company in 1998 and
became  Secretary-Treasurer  in  January  1999  and has been  the  president  of
Accoware, a computer software company, since 1989. Prior to that time, Mr. Smith
was a  majority  owner of the  Smith's  Family  Honey  Company  in Bryans  Road,
Maryland.  Mr. Smith is a Vice President of Fry Plumbing  Company of Washington,
D.C., a Trustee of the Ferguson  Foundation,  a member of the Bryans Road Sports
Council and the Treasurer of the Mayaone Association.

GREGORY C.  COCKERHAM  (47 years old) joined the Bank in  November  1988 and has
served as Senior Vice President of Lending since 1996.  Prior to his appointment
as Senior Vice President,  Mr.  Cockerham  served as Vice President of the Bank.
Mr.  Cockerham has been in banking for 22 years. He is a Paul Harris Fellow with
the Rotary  Club of Charles  County  and serves on various  civic  boards in the
County.

WILLIAM J. PASENELLI (43 years old) joined the Bank as Chief  Financial  Officer
in April 2000. Prior to joining the Bank, Mr. Pasenelli had been Chief Financial
Officer of Acacia Federal Savings Bank, Annandale,  Virginia,  with which he had
been employed since 1987. Mr. Pasenelli is a member of the American Institute of
Certified Public Accountants,  the DC Institute of Certified Public Accountants,
and other civic groups.


                                       32
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION
--------------------------------

The information contained under the section captioned "Proposal I -- Election of
Directors  -- Executive  Compensation"  in the Proxy  Statement is  incorporated
herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------

     (a) SECURITY OWNERSHIP OF CERTAIN OWNERS

The information required by this item is incorporated herein by reference to the
sections captioned  "Proposal I -- Election of Directors" and "Voting Securities
and Principal Holders Thereof" of the Proxy Statement.

     (b) SECURITY OWNERSHIP OF MANAGEMENT

Information  required by this item is  incorporated  herein by  reference to the
section captioned "Proposal I -- Election of Directors" of the Proxy Statement.

     (c) CHANGES IN CONTROL

Management of the Company knows of no arrangements,  including any pledge by any
person of securities of the Company,  the operation of which may at a subsequent
date result in a change in control of the registrant.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

The information required by this item is incorporated herein by reference to the
section captioned  "Proposal I -- Election of Directors" and "Transactions  with
the Company and the Bank" of the Proxy Statement.


                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
--------------------------------------------------------------------------

     (a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
         ----------------------------------------------

     (1)  Financial  Statements.  The  following  is a list of the  consolidated
financial statements which are being filed as part of this Annual Report on Form
10-K.

                                                                            Page
                                                                            ----

         Independent Auditors' Report                                        F-1
         Consolidated Balance Sheets as of December 31, 2001 and 2000        F-2
         Consolidated Statements of Income for the Years Ended
           December 31, 2001, 2000 and 1999                                  F-3
         Consolidated Statements of Changes in Stockholders' Equity
           for the Years Ended December 31, 2001, 2000 and 1999              F-4
         Consolidated Statements of Cash Flows for the Years
           Ended December 31, 2001, 2000 and 1999                            F-5
         Notes to  Consolidated Financial Statements                         F-7

     (2) Financial  Statement  Schedules.  All schedules for which  provision is
made in the  applicable  accounting  regulations  of the Securities and Exchange
Commission are omitted because of the absence of conditions under which they are
required or because the  required  information  is included in the  consolidated
financial statements and related notes thereto.


                                       33
<PAGE>

         (3) Exhibits. The following is a list of exhibits filed as part of this
Annual Report on Form 10-K and is also the Exhibit Index.

               3.1    Articles of Incorporation of Tri-County Financial
                        Corporation*
               3.2    Bylaws of Tri-County Financial Corporation
             10.1 +   Tri-County Financial Corporation 1995 Stock Option and
                        Incentive Plan, as amended **
             10.2 +   Tri-County Financial Corporation 1995 Stock Option Plan
                        for Non-Employee  Directors,  as amended ***
             10.3 +   Employment  Agreements  with  Michael L.  Middleton,  as
                        amended, C. Marie Brown, as amended, and Gregory C.
                        Cockerham ****
             10.4 +   Guaranty  Agreements with Michael L. Middleton,  C.
                        Marie Brown and Gregory C. Cockerham **
             10.5 +   Executive Incentive Compensation Plan **
             10.6 +   Employment Agreement with William J. Pasenelli **
             10.7 +   Retirement Plan for Directors **
             10.8 +   Split Dollar Agreements with Michael L. Middleton and
                        C. Marie Brown **
             10.9 +   Guaranty Agreement with William J. Pasenelli
             10.10+   Split Dollar Agreement with William J. Pasenelli
             21       Subsidiaries of the Registrant
             23       Consent of Stegman & Company
     _____________
     +    Management  contract or  compensatory  plan required to be filed as an
          exhibit pursuant to Item 14(c).
     *    Incorporated by reference to the Registrant's  Registration  Statement
          on Form S-4 (No. 33-31287).
     **   Incorporated by reference to the Registrant's Form 10-K for the fiscal
          year ended December 31, 2000.
     ***  Incorporated by reference to the Registrant's  Registration  Statement
          on Form S-8 (File No. 333-70800).
     **** Incorporated by reference to  Registrant's  Annual Report on Form 10-K
          for the fiscal year ended December 31, 1998

     (b)  REPORTS ON FORM 8-K. No reports on Form 8-K have been filed during the
          -------------------
          last quarter of the fiscal year covered by this report.

     (c)  EXHIBITS.  The  exhibits  required by Item 601 of  Regulation  S-K are
          --------
          either  filed  as  part  of  this  Annual   Report  on  Form  10-K  or
          incorporated by reference herein.

     (d)  FINANCIAL  STATEMENTS AND SCHEDULES EXCLUDED FROM ANNUAL REPORT. There
          ---------------------------------------------------------------
          are no other financial  statements and financial  statement  schedules
          which  were  excluded   from  the  Annual  Report   pursuant  to  Rule
          14a-3(b)(1) which are required to be included herein.

                                       34
<PAGE>

                       [LETTERHEAD OF STEGMAN & COMPANY]

Stockholders and Board of Directors
Tri-County Financial Corporation


     We have audited the accompanying  consolidated balance sheets of Tri-County
Financial  Corporation  as of  December  31,  2001  and  2000,  and the  related
consolidated  statements  of income,  changes in  stockholders'  equity and cash
flows for each of the three years in the period ended  December 31, 2001.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
Tri-County  Financial  Corporation  as of December  31,  2001 and 2000,  and the
results  of its  operations  and cash  flows for each of the three  years in the
period  ended  December 31,  2001,  in  conformity  with  accounting  principles
generally accepted in the United States of America.


                                        /s/ Stegman & Company



Baltimore, Maryland
March 6, 2002

                                      F-1
<PAGE>
                            TRI-COUNTY FINANCIAL CORPORATION

                                CONSOLIDATED BALANCE SHEETS
                                DECEMBER 31, 2001 AND 2000
<TABLE>
<CAPTION>
                                          ASSETS

                                                                   2001           2000
                                                                  ------         ------
<S>                                                               <C>            <C>
Cash and due from banks                                       $     693,439  $     645,817
Interest-bearing deposits with banks                              7,678,158      5,975,314
Investment securities available for sale - at fair value         41,673,742     56,860,996
Investment securities held to maturity - at amortized cost        2,289,354      1,714,367
Stock in Federal Home Loan Bank and Federal Reserve Bank -
at cost                                                           3,035,550      3,035,550
Loans held for sale                                               2,354,315        355,000
Loans receivable - net of allowance for loan losses
of $2,281,581 and $1,929,531, respectively                      193,450,011    172,090,088
Premises and equipment, net                                       5,432,848      4,495,431
Foreclosed real estate                                            1,800,569        176,626
Accrued interest receivable                                       1,049,401      1,353,658
Other assets                                                      2,499,903      1,636,609
                                                              -------------  -------------
     TOTAL ASSETS                                             $ 261,957,290  $ 248,339,456
                                                              =============  =============

                           LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
  Noninterest-bearing deposits                                $  17,738,165  $  12,537,649
  Interest-bearing deposits                                     165,378,369    155,268,350
                                                              -------------  -------------
     Total deposits                                             183,116,534    167,805,999
  Short-term borrowings                                           1,813,317     13,550,903
  Long-term debt                                                 48,650,000     41,400,000
     Accrued expenses and other liabilities                       2,790,981      2,152,732
                                                              -------------  -------------

     Total liabilities                                          236,370,832    224,909,634
                                                              -------------  -------------

STOCKHOLDERS' EQUITY:

Common stock - par value $.01; authorized - 15,000,000 shares;
  issued 756,805 and 777,680 shares, respectively                     7,568          7,777
Surplus                                                           7,545,590      7,500,865
Retained earnings                                                17,678,367     16,175,708
Accumulated other comprehensive income                              555,513       (114,929)
Unearned ESOP shares                                               (200,580)      (139,599)
                                                              -------------  -------------
Total stockholders' equity                                       25,586,458     23,429,822
                                                              -------------  -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                    $ 261,957,290  $ 248,339,456
                                                              =============  =============
</TABLE>

See notes to consolidated financial statements

                                      F-2

<PAGE>
                        TRI-COUNTY FINANCIAL CORPORATION

                        CONSOLIDATED STATEMENTS OF INCOME
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
<TABLE>
<CAPTION>

                                                                            2001          2000           1999
                                                                            ----          ----           ----
<S>                                                                      <C>            <C>            <C>
INTEREST INCOME:
   Interest and fees on loans                                            $15,223,463    $13,950,200    $11,562,846
   Taxable interest and dividends on investment securites                  3,215,164      4,237,326      4,197,132
   Interest on bank deposits                                                  76,049        102,036         93,352
                                                                         -----------    -----------    -----------
        Total interest income                                             18,514,676     18,289,562     15,853,330
                                                                         -----------    -----------    -----------
INTEREST EXPENSE:
   Interest on deposits                                                    5,935,478      6,314,871      5,528,672
   Interest on short term borrowings                                         259,558      1,418,146      1,410,863
   Interest on long term debt                                              2,562,775      1,694,473        501,644
                                                                         -----------    -----------    -----------
        Total interest expenses                                            8,757,811      9,427,490      7,441,179
                                                                         -----------    -----------    -----------

NET INTEREST INCOME                                                        9,756,865      8,862,072      8,412,151

PROVISION FOR LOAN LOSSES                                                    360,000        360,000        240,000

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                        9,396,865      8,502,072      8,172,151
                                                                         -----------    -----------    -----------

NONINTEREST INCOME:
   Loan appraisal, credit, and miscellaneous charges                         226,641         76,326        182,494
   Net gain on sale of loans held for sale                                   187,304         85,716        238,215
   Net gain (loss) on sales of investment securities                               -        184,704           (605)
   Service charges                                                           953,496        996,884        811,991
   Other                                                                      34,079         29,358         39,369
                                                                         -----------    -----------    -----------
        Total noninterest income                                           1,401,520      1,372,988      1,271,464
                                                                         -----------    -----------    -----------

NONINTEREST EXPENSE:
   Salary and employee benefits                                            3,821,330      3,643,865      3,600,119
   Occupancy expense                                                         689,575        615,809        540,667
   ATM and deposit expenses                                                  254,176        340,532        287,178
   Advertising                                                               301,975        246,619        280,044
   Data processing expense                                                   291,399        255,792        215,227
   Depreciation of furniture, fixtures, and equipment                        263,535        241,714        231,240
   Other expenses                                                          1,372,510        987,533      1,121,650
                                                                         -----------    -----------    -----------
        Total noninterest expenses                                         6,994,500      6,331,864      6,276,125
                                                                         -----------    -----------    -----------

INCOME BEFORE INCOME TAXES                                                 3,803,885      3,543,196      3,167,490

Income tax expense                                                         1,318,350      1,207,000      1,014,000
                                                                         -----------    -----------    -----------

NET INCOME                                                               $ 2,485,535    $ 2,336,196    $ 2,153,490
                                                                         ===========    ===========    ===========

INCOME PER COMMON SHARE
   Basic                                                                       $3.24          $2.98          $2.75
   Diluted                                                                      3.11           2.85           2.59
</TABLE>

See notes to consolidated financial statements

                                       F-3
<PAGE>
                        TRI-COUNTY FINANCIAL CORPORATION

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
<TABLE>
<CAPTION>
                                                                           Accumu-
                                                                            lated
                                                                            Other
                                                                           Compre-
                                                                           hensive   Unearned
                                          Common   Paid-in    Retained     Income      ESOP
                                           Stock   Capital    Earnings     (Loss)     Shares          Total
                                           -----   -------    --------     --------  ---------        -----
<S>                                       <C>     <C>        <C>           <C>        <C>          <C>
BALANCES, JANUARY 1, 1999                 $ 7,893 $7,309,901 $13,215,770   $ 648,614  $(206,883)   $20,975,295
 Comprehensive income:
  Net Income                                    -          -   2,153,490           -          -      2,153,490
   Unrealized gains on investment
    securities net of tax of $770,187                                     (1,367,112)               (1,367,112)
                                                                                                   -----------
      Total comprehensive income                                                                       786,378
Cash dividend  $0.20 per share                  -          -    (157,034)          -          -        (157,034)
Excess of fair market value over cost
  of leveraged ESOP shares released             -     11,401           -           -          -         11,401
Exercise of stock options                     222    125,938           -           -          -        126,160
Repurchase of common stock                   (248)         -    (656,902)          -          -       (657,150)
Net change in unearned ESOP shares             15          -           -           -     30,318         30,333
                                          ------- ---------- -----------  ----------  ---------    -----------
BALANCES, DECEMBER 31, 1999               $ 7,882 $7,447,240 $14,555,324  $ (718,498) $(176,565)   $21,115,383
 Comprehensive income:
  Net Income                                    -          -   2,336,196           -          -      2,336,196
   Unrealized gains on investment
    securities net of tax of $310,083           -          -           -     603,569          -        603,569
                                                                                                   -----------
      Total comprehensive income                                                                     2,939,765
Cash dividend  $0.30 per share                  -          -    (236,595)          -          -       (236,595)
Excess of fair market value over cost
  of leveraged ESOP shares released             -     12,964           -           -          -         12,964
Exercise of stock options                      50     40,661           -           -          -         40,711
Repurchase of common stock                   (173)         -    (479,217)          -          -       (479,390)
Net change in unearned ESOP shares             18          -           -           -     36,966         36,984
                                          ------- ---------- -----------  ----------  ---------    -----------
BALANCES, DECEMBER 31, 2000               $ 7,777 $7,500,865 $16,175,708  $ (114,929) $(139,599)   $23,429,822
 Comprehensive income:
  Net Income                                    -          -   2,485,535           -          -      2,485,535
   Unrealized gains on investment
    securities net of tax of $343,599           -          -           -     670,442          -        670,442
                                                                                                   -----------
      Total comprehensive income                                                                     3,155,977
Cash dividend  $0.40 per share                  -          -    (309,204)          -          -       (309,204)
Excess of fair market value over cost
  of leveraged ESOP shares released             -     12,964           -           -          -         12,964
Exercise of stock options                      56     31,761           -           -          -         31,817
Repurchase of common stock                   (248)         -    (673,672)                             (673,920)
Net change in unearned ESOP shares            (17)         -           -           -    (60,981)       (60,998)
                                          ------- ---------- -----------  ----------  ---------    -----------
BALANCES, DECEMBER 31, 2001               $ 7,568 $7,545,590 $17,678,368  $  555,513  $(200,580)   $25,586,458
                                          ======= ========== ===========  ==========  =========    ===========
</TABLE>
                                       F-4
<PAGE>
                        TRI-COUNTY FINANCIAL CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECMBER 31, 2001, 2000, AND 1999
<TABLE>
<CAPTION>
                                                                        2001          2000          1999
                                                                        ----          ----          ----
<S>                                                                    <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                            $ 2,485,535   $ 2,336,196   $ 2,153,490
Adjustments to reconcile net income to net
  cash provided by operating activities:
   Provision for loan losses                                              360,000       360,000       240,000
   Depreciation and amortization                                          396,400       348,110       336,383
   Net amortization of premium/discount on
     mortgage backed securities and investments                            66,146       (86,909)     (236,443)
   Deferred income tax benefit                                           (205,000)     (118,000)      (68,000)
   Decrease (increase) in accrued interest receivable                     304,257      (207,138)      183,585
   Decrease in deferred loan fees                                         (18,131)      (31,732)     (122,180)
   Increase in accrued expenses and other liabilities                     638,249       911,013       690,273
   Decrease (increase) in other assets                                 (1,006,157)      323,234      (276,747)
   Loss (gain) on disposal of premises and equipment                       (8,386)            -         3,256
   (Gain) loss on sale of investment securities                                 -      (184,704)          605
   Origination of loans held for sale                                  (9,752,097)   (1,966,774)   (9,268,298)
   Proceeds from sale of loans held for sale                           11,938,716     2,470,589    11,000,111
   Gain on sales of loans held for sale                                  (187,304)      (85,716)     (238,215)
                                                                      -----------    ----------   -----------
          Net cash provided by operating activities                     5,012,228     4,068,169     4,397,820
                                                                      -----------    ----------   -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Net increase (decrease) in interest-bearing deposits with banks     (1,702,844)   (2,912,035)    1,089,537
   Purchase of investment securities available for sale               (29,410,447)  (18,235,337)  (74,254,708)
   Proceeds from sale, redemption or principal payments
    of investment securities available for sale                        45,549,859    19,212,629    71,673,801
   Purchase of investment securities held to maturity                  (1,345,703)     (893,649)   (1,697,520)
   Proceeds from maturities or principal payments
    of investment securities held to maturity                             770,717     1,128,333     1,890,569
   Net purchase of FHLB and Federal Reserve stock                               -      (747,850)     (282,350)
   Loans originated or acquired                                       (96,149,353)  (70,415,720)  (62,475,059)
   Principal collected on loans                                        70,448,931    44,707,731    48,239,092
   Purchase of premises and equipment                                  (1,334,396)     (327,155)     (551,968)
   Proceeds from disposal of premises and equipment                         8,963             -        12,150
   Acquisition of foreclosed real estate                               (1,623,943)            -      (122,910)
                                                                      -----------    ----------   -----------
       Net cash used in investing activities                          (14,788,216)  (28,483,053)  (16,479,366)
                                                                      -----------    ----------   -----------
</TABLE>
                                       F-5
<PAGE>
                        TRI-COUNTY FINANCIAL CORPORATION

                CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
              FOR THE YEARS ENDED DECMBER 31, 2001, 2000, AND 1999
<TABLE>
<CAPTION>
                                                                        2001             2000              1999
                                                                        ----             ----              ----
<S>                                                                  <C>           <C>             <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
   Net increase in deposits                                          $ 15,310,535     $ 12,064,199     $  3,926,436
   Net (decrease) increase in short-term borrowings                   (11,737,586)         152,525       (3,539,504)
   Dividends paid                                                        (309,204)        (236,595)        (157,034)
   Exercise of stock options                                               31,817           40,711          126,160
   Net change in unearned ESOP shares                                     (48,033)          49,948           41,734
   Repurchase of common stock                                            (673,920)        (479,391)        (657,150)
   Proceeds from long-term borrowings                                  12,250,000       30,000,000       35,000,000
   Payments of long-term borrowings                                    (5,000,000)     (20,000,000)     (20,096,450)
                                                                     ------------     ------------     ------------
      Net cash provided by financing activities                         9,823,609       21,591,397       14,644,192

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                           47,622       (2,823,487)       2,562,646

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                            645,817        3,469,304          906,658
                                                                     ------------     ------------     ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                             $    693,439     $    645,817     $  3,469,304
                                                                     ============     ============     ============

Supplementary cash flow information:
  Cash paid during the year for:
    Interest                                                         $  9,015,483     $  8,737,746     $  7,368,462
    Income taxes                                                        1,431,000          925,000        1,288,882

Noncash transfer from loans to foreclosed real estate                   1,276,070                -           53,716

</TABLE>

See notes to consolidated financial statements.

                                       F-6
<PAGE>
                        TRI-COUNTY FINANCIAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999



1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          Basis of Presentation and Consolidation
          ---------------------------------------

               The  consolidated  financial  statements  include the accounts of
Tri-County Financial Corporation and its wholly owned subsidiary, Community Bank
of Tri-County (the "Bank") and the Bank's wholly owned subsidiaries,  Tri-County
Investment   Corporation  and  Community  Mortgage   Corporation  of  Tri-County
(collectively,   the  "Company").  All  significant  intercompany  balances  and
transactions have been eliminated in consolidation. The accounting and reporting
policies of the Company conform with accounting principles generally accepted in
the  United  States of  America  and to general  practices  within  the  banking
industry.  Certain  reclassifications  have  been  made  to  amounts  previously
reported to conform with classifications made in 2001.

          Use of Estimates
          ----------------

               In preparing consolidated financial statements in conformity with
accounting  principles  generally  accepted  in the  United  States of  America,
management  is  required  to make  estimates  and  assumptions  that  affect the
reported  amounts of assets and  liabilities as of the date of the balance sheet
and  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those  estimates.  Material  estimates that are
particularly  susceptible to  significant  change in the near term relate to the
determination of the allowance for loan losses,  and the valuation of foreclosed
real estate and deferred tax assets.

          Nature of Operations
          --------------------

               The Company,  through its bank subsidiary,  conducts full service
commercial banking operations throughout the Southern Maryland area. Its primary
financial  deposit  products  are  savings,  transaction,  and term  certificate
accounts.  Its primary  lending  products  are  mortgage  loans on  residential,
construction  and  commercial  real  estate and various  types of  consumer  and
commercial lending.

          Significant Group Concentrations of Credit
          ------------------------------------------

               Most of the  Company's  activities  take  place  in the  Southern
Maryland area  comprising  St. Mary's,  Charles,  and Calvert  counties.  Note 2
discusses the types of securities  the Company  invests in. Note 3 discusses the
type of lending  that the  Company  engages  in. The  Company  does not have any
significant concentration to any one customer or industry.

                                       F-7
<PAGE>

          Cash and Cash Equivalents
          -------------------------

               For purposes of the  consolidated  statements of cash flows,  the
Company  considers all highly liquid debt instruments  with original  maturities
when purchased of three months or less to be cash equivalents. These instruments
are presented as cash and due from banks.

          Investment Securities
          ---------------------

               Investment securities that are held principally for resale in the
near term are  classified as trading  assets and are recorded at fair value with
changes in fair value  recorded in earnings.  The Company had no trading  assets
during the periods  presented.  Debt securities that management has the positive
intent and ability to hold to maturity are classified as "held- to-maturity" and
recorded at amortized  cost.  Securities  not  classified as held to maturity or
trading,  including equity securities with readily  determinable fair values are
classified as  "available-for-sale"  and recorded at fair value, with unrealized
gains and losses  excluded from  earnings and reported net of deferred  taxes in
other comprehensive income, a separate component of stockholders' equity.

               Purchase premiums and discounts are recognized in interest income
using the interest method over the terms of the securities. Declines in the fair
value of  held-to-maturity  and  available-for-sale  securities below their cost
that are deemed to be other than temporary are reflected in earnings as realized
losses.  Gains and losses on the sales of  securities  are recorded on the trade
date and are determined using the specific identification method.

               The Company invests in Federal Home Loan Bank and Federal Reserve
Bank stock which are considered restricted as to marketability.

          Loans Held for Sale
          -------------------

               Loans  originated  and intended for sale in the secondary  market
are carried at the lower of cost or estimated fair value, in the aggregate.  Net
unrealized  losses,  if any,  are  recognized  through a valuation  allowance by
charges to income.

          Loans Receivable
          ----------------

               The Company grants  mortgage,  commercial,  and consumer loans to
customers.  A substantial  portion of the loan portfolio is represented by loans
throughout  Southern  Maryland.  The ability of the  Company's  debtors to honor
their  contracts  is  dependent  upon  the  real  estate  and  general  economic
conditions in this area.

               Loans that  management has the intent and ability to hold for the
foreseeable  future or until maturity or payoff  generally are reported at their
outstanding  unpaid principal  balances adjusted for charge-offs,  the allowance
for loan losses,  and any deferred fees or costs on originated  loans.  Interest
income is accrued on the unpaid principal balance. Loan origination fees, net of
certain direct  origination  costs, are deferred and recognized as an adjustment
of the related loan yield using the interest method.

                                       F-8
<PAGE>

               The  accrual of  interest on  mortgage  and  commercial  loans is
discontinued  at the time the loan is 90 days  delinquent  unless  the credit is
well secured and in the process of collection. Consumer loans are charged-off no
later than 120 days past due. In all cases,  loans are placed on  nonaccrual  or
charged-off  at an earlier  date if  collection  of  principal  or  interest  is
considered doubtful.

               All interest accrued but not collected from loans that are placed
on nonaccrual or charged-off is reversed against  interest income.  The interest
on these loans is accounted for on the cash-basis or cost-recovery method, until
qualifying for return to accrual.  Loans are returned to accrual status when all
principal and interest amounts  contractually due are brought current and future
payments are reasonably assured.

          Allowance for Loan Losses
          -------------------------

               The  allowance  for loan  losses is  established  as  losses  are
estimated  to have  occurred  through a  provision  for loan  losses  charged to
earnings. Loan losses are charged against the allowance when management believes
that the uncollectibility of a loan balance is confirmed. Subsequent recoveries,
if any, are credited to the allowance.

               The  allowance for loan losses is evaluated on a regular basis by
management and is based upon management's  periodic review of the collectibility
of the loans in light of  historical  experience,  the  nature and volume of the
loan portfolio,  adverse  situations  that may affect the borrower's  ability to
repay,  estimated  value of any underlying  collateral  and prevailing  economic
conditions.  This evaluation is inherently  subjective as it requires  estimates
that  are  susceptible  to  significant  revision  as more  information  becomes
available.

               The allowance  for loan loss  consists of an allocated  component
and an  unallocated  component.  The  components  of  allowance  for loan losses
represent  an  estimation  done  pursuant to either SFAS No. 5  "Accounting  for
Contingencies",  or SFAS No. 114  "Accounting  by Creditors for  Impairment of a
Loan".  The  allocated  component  of the  allowance  for loan  losses  reflects
expected  losses  resulting  from analysis  developed  through  specific  credit
allocations  for individual  loans and historical  loss experience for each loan
category. The specific credit allocations are based on a regular analysis of all
loans over a fixed-dollar amount where the internal credit rating is at or below
a predetermined  classification.  The historical loan loss element is determined
statistically  using a loss migration analysis that examines loss experience and
the related internal gradings of loans charged-off.  The loss migration analysis
is performed  quarterly and loss factors are updated  regularly  based on actual
experience.  The  allocated  component  of the  allowance  for loan  losses also
includes management's  determination of the amounts necessary for concentrations
and changes in portfolio mix and volume.

               The unallocated  portion of the allowance is determined  based on
management's  assessment  of general  economic  conditions,  as well as specific
economic factors in the individual  markets in which the Company operates.  This
determination  inherently  involves a higher risk of  uncertainty  and considers
current  risk  factors  that  may not  have  yet  manifested  themselves  in the
Company's  historical loss factors used to determine the allocated  component of
the allowance and it recognizes knowledge of the portfolio may be incomplete.

                                       F-9
<PAGE>

               A loan is considered  impaired when, based on current information
and  events,  it is  probable  that the  Company  will be unable to collect  the
scheduled   payments  of  principal  or  interest  when  due  according  to  the
contractual  terms of the loan  agreement.  Factors  considered by management in
determining  impairment  include  payment  status,  collateral  value,  and  the
probability of collecting  scheduled  principal and interest  payments when due.
Loans that experience  insignificant  payment delays and payment  shortfalls are
reviewed  on  a  case-by-case  basis,  taking  into  consideration  all  of  the
circumstances surrounding the loan and the borrower, including the length of the
delay, the reasons for the delay,  the borrower's prior payment record,  and the
amount  of the  shortfall  in  relation  to the  principal  and  interest  owed.
Impairment is measured on a loan by loan basis for commercial  and  construction
loans by either the present  value of expected  future cash flows  discounted at
the loan's effective  interest rate, the loan's  observable market price, or the
fair value of the collateral if the loan is collateral  dependent.  Large groups
of  smaller  homogeneous  loans  are  collectively   evaluated  for  impairment.
Accordingly,  the Company does not separately  identify  individual consumer and
residential loans for impairment disclosures.

          Mortgage Servicing Assets
          -------------------------

               Mortgage  servicing assets are recognized as separate assets when
rights are  acquired  through  purchase or through sale of mortgages or mortgage
servicing rights.  Capitalized servicing rights are reported in other assets and
are amortized into noninterest  income in proportion to, and over the period of,
the estimated  future net servicing income of the underlying  financial  assets.
Servicing  assets are evaluated for impairment  based upon the fair value of the
rights as compared to amortized  cost.  Impairment is determined by  stratifying
rights by predominant  characteristics,  when available,  such as interest rates
and terms. Fair value is determined using prices for similar assets with similar
characteristics,  when  available,  or based upon  discounted  cash flows  using
market based assumptions. Impairment is recognized through a valuation allowance
for an  individual  stratum,  to the  extent  that  fair  value is less than the
capitalized amount for the stratum.

          Premises and Equipment
          ----------------------

               Land is carried at cost.  Premises and  equipment  are carried at
cost, less accumulated  depreciation  computed by the straight-line  method over
the estimated useful lives of the assets which are as follows:

                 Buildings and improvements                15 - 50 years
                 Furniture and equipment                    3 - 15 years
                 Automobiles                                     5 years

          Foreclosed Real Estate
          ----------------------

               Assets acquired through, or in lieu of, loan foreclosure are held
for sale and are  initially  recorded at fair value at the date of  foreclosure,
establishing  a new  cost  basis.  Subsequent  to  foreclosure,  valuations  are
periodically  performed by management and the assets are carried at the lower of
carrying  amount or fair  value less cost to sell.  Revenue  and  expenses  from
operations  and changes in the valuation  allowance are included in  noninterest
expense.

                                       F-10
<PAGE>
          Income Taxes
          ------------

               The Company files a  consolidated  federal income tax return with
its  subsidiaries.  Deferred tax assets and liabilities are determined using the
liability (or balance  sheet)  method.  Under this method,  the net deferred tax
asset or  liability  is  determined  based on the tax  effects of the  temporary
differences  between the book and tax bases of the various  balance sheet assets
and liabilities and gives current recognition to changes in tax rates and laws.

          Earnings Per Share
          ------------------

               Basic earnings per common share  represents  income  available to
common  stockholders  divided by the weighted  average  number of common  shares
outstanding  during the period.  Diluted earnings per share reflects  additional
common  shares that would have been  outstanding  if potential  dilutive  common
shares had been issued,  as well as any  adjustment  to income that would result
from the assumed  issuance.  Potential  common  shares that may be issued by the
Company relate solely to outstanding stock options, and are determined using the
treasury stock method.

          Stock-Based Compensation
          ------------------------

               Stock based  compensation is recognized using the intrinsic value
method.  For  disclosure  purposes,  pro forma net income and earnings per share
effects are provided as if the fair value method had been applied.

          New Accounting Standards
          ------------------------

               In July 2001, the Securities and Exchange  Commission (the "SEC")
issued Staff Accounting  Bulletin ("SAB") No. 102,  Selected Loan Loss Allowance
Methodology and Documentation  Issues.  SAB 102 summarizes  certain SEC views on
the development,  documentation,  and application of a systematic methodology as
required by Financial  Reporting  Release No. 28 for determining  allowances for
loan and  lease  losses  in  accordance  with  accounting  principles  generally
accepted  in the United  States.  In  particular,  the  guidance  focuses on the
documentation  the staff  normally  would  expect  registrants  to  prepare  and
maintain in support of their allowances for loan losses.

               SAB  102  provides  parallel  guidance  to  the  federal  banking
agencies guidance issued through the Federal Financial Institutions  Examination
Council as  interagency  guidance,  "Policy  Statement on Allowance for Loan and
Lease   Losses   Methodologies   and   Documentation   for  Banks  and   Savings
Institutions".  The adoption of SAB 102 had no affect on the financial  position
or results of operations of the Company.

               In July 2001,  the Financial  Accounting  Standards  Board issued
Statement  of  Financial   Accounting   Standards  ("SFAS")  No.  141,  Business
Combinations and SFAS No. 142,  Goodwill and Other Intangible  Assets.  SFAS 141
requires  that the  purchase  method  of  accounting  be used  for all  business
combinations  initiated  after  June  30,  2001 as well as all  purchase  method
business  combinations  completed  after June 30, 2001.  SFAS 141 also specifies
criteria  that  intangible   assets  acquired  in  a  purchase  method  business
combination  must meet to be recognized and reported  apart from goodwill.  SFAS
142 requires that goodwill and intangible assets with indefinite useful lives no

                                       F-11
<PAGE>

longer be amortized,  but instead be tested for  impairment at least annually in
accordance  with the  provisions of Statement  142.  Statement 142 also requires
that  intangible  assets with  definite  useful  lives be  amortized  over their
respective  estimated  useful  lives  to their  estimated  residual  values  and
reviewed for  impairment in  accordance  with SFAS No. 121,  Accounting  for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. The
provisions of SFAS Nos. 141 and 142 are effective for years beginning after July
1, 2001 and January 1, 2002, respectively.  The adoption of SFAS No. 141 and 142
did not affect the financial position or results of operations of the Company.

               In August 2001, the Financial  Accounting  Standards Board issued
SFAS No. 144,  Accounting for the  Impairment or Disposal of Long-Lived  Assets,
which supersedes both SFAS No. 121,  Accounting for the Impairment of Long-Lived
Assets to be Disposed Of and the  accounting  and  reporting  provisions  of APB
Opinion No. 30,  Reporting the Results of  Operations--Reporting  the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions (Opinion 30), for the disposal of a segment of
a business (as  previously  defined in that  Opinion).  SFAS No. 144 retains the
fundamental  provisions in SFAS No. 121 for recognizing and measuring impairment
losses in long-lived assets held for use and long-lived assets to be disposed of
by sale, while also resolving significant  implementation issues associated with
SFAS No. 121. The  provisions of SFAS No. 144 are effective for years  beginning
after  December 15, 2001. The adoption of SFAS No. 144 is not expected to affect
the financial position or results of operations of the Company.


                                       F-12
<PAGE>

2.   INVESTMENT SECURITIES

               The amortized cost and estimated  fair values of securities  with
gross unrealized losses and gains are:
<TABLE>
<CAPTION>
                                                                          December 31, 2001
                                                       --------------------------------------------------------
                                                                         Gross           Gross        Estimated
                                                       Amortized       Unrealized      Unrealized       Fair
                                                          Cost           Gains           Losses        Values
                                                          ----           -----           ------        ------
<S>                                                     <C>             <C>            <C>         <C>
Securities available for sale
  Mutual Funds                                          $ 5,868,115     $       -      $      -    $ 5,868,115
  Government Sposored Enterprises (GSE's)                         -             -             -              -
Asset-backed securities issued by:
  GSE's                                                  25,603,305       564,133        82,494     26,084,944
  Other                                                   8,846,200       147,777           516      8,993,461
                                                        -----------     ---------      --------    -----------
Total debt securities available for sale                 40,317,620       711,910        83,010     40,946,520
Corporate equity securities                                 509,010       218,212             -        727,222
                                                        -----------     ---------      --------    -----------
Total securities available for sale                     $40,826,630     $ 930,122      $ 83,010    $41,673,742
                                                        ===========     =========      ========    ===========

Securities held-to-maturity
  U.S. government obligations                           $   300,000     $       -      $    500    $   299,500
  Other investments                                       1,989,354             -             -      1,989,354
                                                        -----------     ---------      --------    -----------
Total securities held-to-maturity                       $ 2,289,354     $       -      $    500    $ 2,288,854
                                                        ===========     =========      ========    ===========

<CAPTION>
                                                                          December 31, 2000
                                                       --------------------------------------------------------
                                                                         Gross           Gross        Estimated
                                                       Amortized       Unrealized      Unrealized       Fair
                                                          Cost           Gains           Losses        Values
                                                          ----           -----           ------        ------
<S>                                                     <C>             <C>            <C>         <C>
Securities available for sale
  Mutual Funds                                          $   753,116     $       -     $       -    $   753,116
  Government Sposored Enterprises (GSE's)                 8,000,000             -        88,397      7,911,603
Asset-backed securities issued by:
  GSE's                                                  30,894,088       139,721       456,854     30,576,955
  Other                                                  16,890,571        32,527        68,100     16,854,998
                                                        -----------     ---------      --------    -----------
Total debt securities available for sale                 56,537,775       172,248       613,351     56,096,672
Corporate equity securities                                 509,010       255,314             -        764,324
                                                        -----------     ---------      --------    -----------
Total securities available for sale                     $57,046,785     $ 427,562     $ 613,351    $56,860,996
                                                        ===========     =========      ========    ===========
Securities held-to-maturity
  U.S. government obligations                           $   200,000     $       -     $       -    $   200,000
  Other investments                                       1,514,367             -             -      1,514,367
                                                        -----------     ---------      --------    -----------
Total securities held-to-maturity                       $ 1,714,367     $       -     $       -    $ 1,714,367
                                                        ===========     =========      ========    ===========
</TABLE>

               At December 31, 2001 and 2000, U.S. Government obligations with a
carrying  value of $300,000 and $200,000,  respectively,  were pledged to secure
public unit  deposits  and for other  purposes  required or permitted by law. In
addition,  at  December  31,  2001 and 2000,  certain  other  securities  with a
carrying  value of  $3,413,300  and  $4,644,600  were pledged to secure  certain
deposits.  At December 31, 2001, securities with a carrying value of $34,738,000
were  pledged as  collateral  for  advances  from the Federal  Home Loan Bank of
Atlanta.

                                       F-13
<PAGE>

               The  scheduled  maturities of securities at December 31, 2001 are
as follows:
<TABLE>
<CAPTION>
                                                                 Available for Sale               Held to Maturity
                                                           ------------------------------      ---------------------------
                                                            Amortized           Fair             Amortized          Fair
                                                               Cost             Value              Cost            Value
                                                           ------------      ------------       -----------     ----------

            <S>                                             <C>              <C>                <C>            <C>
            Within one year                                 $ 5,868,115      $ 5,868,115        $ 1,277,724    $ 1,277,224
            Over one year through five years                          -                -          1,011,630      1,011,630
            Over five years through ten years                         -                -                  -              -
                                                            -----------      -----------        -----------    -----------
                                                              5,868,115        5,868,115          2,289,354      2,288,854
            Mortgage-backed securities                       34,449,505       35,078,405                  -              -
                                                            -----------      -----------        -----------    -----------
                                                            $40,317,620      $40,946,520        $ 2,289,354    $ 2,288,854
                                                            ===========      ===========        ===========    ===========
</TABLE>

               Proceeds  from the sales of investment  securities  available for
sale during 2001, 2000, and 1999 were $0, $186,900, and $200,000,  respectively.
Gross gains in the years  ending  December  31,  2001,  2000,  and 1999 were $0,
$184,704,  and $0, respectively.  Gross losses for the years ending December 31,
2001, 2000, and 1999 were $-0-, $0, and $605, respectively.

               Asset-backed   securities   are   comprised  of   mortgage-backed
securities  as well as mortgage  derivative  securities  such as  collateralized
mortgage  obligations and real estate mortgage investment  conduits.  In certain
cases, the Bank will purchase securities of a single private issuer,  defined as
an issuer which is not a government or  government  sponsored  entity,  in total
amounts  in excess of 10% of  stockholders'  equity.  The Bank only does so when
satisfied  that  such  concentrations  pose no threat  to the  Bank's  safety or
soundness.  The  following  summarizes  securities  positions and the quality of
private  issuers where those  positions  were in excess of 10% of  stockholders'
equity as of December 31, 2001 and 2000:
<TABLE>
<CAPTION>
                                                                     2001                   2000
                                                           -----------------------   ---------------------
                                                             Carrying     Moody's    Carrying    Moody's
                                                              Value       Rating      Value       Rating
                                                           ------------  ---------   --------    ---------
            <S>                                             <C>             <C>      <C>            <C>
            Country Wide Home Loans                         $ 2,043,415     AAA      $3,874,885     AAA
            GE Capital Mortgage Services                      4,570,638     AAA       5,733,391     AAA
                                                            -----------              ----------
                                                            $ 6,614,053              $9,608,276
                                                            ===========              ==========
</TABLE>

                                       F-14
<PAGE>
3.   LOANS RECEIVABLE

               Loans  receivable  at December  31, 2001 and 2000  consist of the
following:
<TABLE>
<CAPTION>
                                                       2001               2000
                                                       ----               ----
<S>                                               <C>                 <C>
Commercial real estate                            $ 65,616,917        $ 42,226,137
Residential real estate                             61,429,647          67,975,177
Residential construction                            18,136,008          17,301,263
Second mortgage loans                               18,580,099          18,637,062
Lines of credit - commercial                        18,539,209          15,046,074
Consumer loans                                      14,187,608          13,609,934
                                                  ------------        ------------
                                                   196,489,488         174,795,647
                                                  ------------        ------------
Less:
  Deferred loan fees                                   757,896             776,028
  Allowance for loan losses                          2,281,581           1,929,531
                                                  ------------        ------------
                                                     3,039,477           2,705,559
                                                  ------------        ------------

                                                  $193,450,011        $172,090,088
                                                  ============        ============
</TABLE>


               The following  table sets forth the activity in the allowance for
loan losses:
<TABLE>
<CAPTION>
                                                              2001            2000             1999
                                                              ----            ----             ----
<S>                                                        <C>             <C>              <C>
Balance January 1,                                         $1,929,531      $1,653,290       $1,540,551

Add:
  Provision charged to operations                             360,000         360,000          240,000
  Recoveries                                                   31,417          12,034            6,790
Less:
  Charge-offs                                                  39,367          95,793          134,051
                                                           ----------      ----------       ----------
Balance, December 31                                       $2,281,581      $1,929,531       $1,653,290
                                                           ==========      ==========       ==========
</TABLE>

               No  loans  included  within  the  scope  of  SFAS  No.  114  were
identified as being impaired at December 31, 2001 or 2000 and for the years then
ended.

               Loans on which the recognition of interest has been discontinued,
which  were  not  included  within  the  scope  of SFAS  No.  114,  amounted  to
approximately  $280,000,  $7,000,  and $218,000 at

                                       F-15
<PAGE>

December 31, 2001,  2000, and 1999,  respectively.  If interest  income had been
recognized  on  nonaccrual  loans at their stated rates during 2001,  2000,  and
1999, interest income would have been increased by approximately  $10,480, $913,
and $27,000,  respectively.  No income was  recognized  for these loans in 2001,
2000 and 1999.

               Included in loans  receivable  at December 31, 2001 and 2000,  is
$1,223,840 and $536,005 due from officers and directors of the Bank. Activity in
loans outstanding to officers and directors is summarized as follows:
<TABLE>
<CAPTION>
                                                                             2001              2000
                                                                             ----              ----
<S>                                                                       <C>              <C>
Balance, beginning of year                                              $   536,005         $1,379,274
Changes due to retirement or addition of directors net                            -           (916,170)
New loans made during year                                                1,150,460            131,636
Repayments made during year                                                (462,625)           (58,735)
                                                                        -----------         ----------
Balance, end of year                                                    $ 1,223,840         $  536,005
                                                                        ===========         ==========
</TABLE>

4.   LOAN SERVICING

               Loans serviced for others and not reflected in the balance sheets
are  $68,287,344  and  $64,754,825 at December 31, 2001 and 2000,  respectively.
Servicing loans for others generally  consists of collecting  mortgage payments,
maintaining  escrow accounts,  disbursing  payments to investors and foreclosure
processing.  Loan servicing income is recorded on the accrual basis and includes
servicing fees from investors and certain charges collected from borrowers, such
as late payment fees.  Mortgage  servicing rights capitalized during 2001, 2000,
and 1999 totaled $182,119, $45,365, and $142,201, respectively.

               Amortization  of  mortgage  servicing  rights  totaled  $144,000,
$144,000,  and  $103,097,  respectively.  Net servicing  rights  assets  totaled
$525,075,  $486,956,  and  $585,591  at  December  31,  2001,  2000,  and  1999,
respectively.


                                       F-16
<PAGE>

5.   PREMISES AND EQUIPMENT

               A summary of premises and equipment at December 31, 2001 and 2000
is as follows:
<TABLE>
<CAPTION>
                                                              2001                2000
                                                              ----                ----
<S>                                                        <C>                 <C>
Land                                                       $1,731,941          $ 1,533,412
Building and improvements                                   3,642,101            3,011,967
Furniture and equipment                                     2,824,015            2,318,860
Automobiles                                                   103,144              103,144
                                                           ----------          -----------
Total cost                                                  8,301,201            6,967,383
Less accumulated depreciation                               2,868,353            2,471,952
                                                           ----------          -----------
Premises and equipment, net                                $5,432,848          $ 4,495,431
                                                           ==========          ===========
</TABLE>

               Certain  bank  facilities  are  leased  under  various  operating
leases.  Rent expense was  $242,387,  $168,921,  and $175,949 in 2001,  2000 and
1999,  respectively.  Future minimum  rental  commitments  under  noncancellable
operating leases are as follows:

              2002                             $218,902
              2003                              196,853
              2004                              196,404
              2005                              195,955
              2006                              195,506
              Thereafter                        507,000
                                               --------

                  Total                      $1,510,620
                                             ==========

6.   DEPOSITS

               Deposits outstanding at December 31 consist of:
<TABLE>
<CAPTION>
                                                          2001                2000
                                                          ----                ----
<S>                                                    <C>                <C>
Noninterest-bearing demand                            $ 17,738,165       $ 12,537,649
Interest-bearing:
  Demand                                                20,842,088         20,551,420
  Money market deposits                                 53,807,885         44,965,316
  Savings                                               20,367,634         18,552,577
  Certificates of deposit                               70,360,762         71,199,037
                                                      ------------       ------------
Total interest-bearing                                 165,378,369        155,268,350
                                                      ------------       ------------
Total deposits                                        $183,116,534       $167,805,999
                                                      ============       ============
</TABLE>

               The  aggregate  amount  of  time  deposits  in  denominations  of
$100,000 or more at December 31, 2001 and 2000 were $17,018,000 and $14,857,000,
respectively.


                                       F-17
<PAGE>

               At December 31, 2001,  the scheduled  maturities of time deposits
are as follows:

       2002                           $42,857,583
       2003                            16,056,571
       2004                             7,259,541
       2005                             1,827,744
       2006                             2,359,323
                                      -----------
                                      $70,360,762
                                      ===========

7.   LONG-TERM DEBT AND OTHER BORROWINGS

               The Bank's  long-term  debt consists of advances from the Federal
Home  Loan  Bank of  Atlanta.  The Bank  classifies  debt  based  upon  original
maturity,  and does not  reclassify  debt to short term status  during its life.
These include fixed rate, adjustable rate, and convertible advances.  The Bank's
fixed rate,  non-convertible,  long-term debt of $8,250,000 at December 31, 2001
matures  through  2006.  The  interest  rates  on fixed  rate,  non-convertible,
long-term  debt ranged  from  1.125% to 5.43% at December  31, 2001 and 6.25% at
December 31, 2000. At December 31, 2001 and 2000, the weighted  average interest
rates on fixed  rate,  non-convertible,  long-term  debt were  5.14% and  6.25%,
respectively.

               The Bank's fixed rate, convertible, long-term debt of $35,000,000
at December 31, 2000 matures  through 2011. This debt is callable by the issuer,
after an initial  period  ranging from six months to five years.  These advances
become  callable on dates  ranging from 2002 to 2005.  Depending on the specific
instrument,  the instrument is callable  either  continuously  after the initial
period  (Bermuda  option)  or  only  at  the  date  ending  the  initial  period
(European). At December 31, 2001 and 2000 the interest rates on this debt ranged
from 4.62% to 6.25% and 4.67% to 6.25%,  respectively.  At December 31, 2001 and
2000 the weighted average interest rates on fixed rate,  convertible,  long-term
debt were 5.42% and 5.63%, respectively.

               The Bank's  adjustable rate,  long-term debt at December 31, 2000
matures in 2002. This debt adjusts  quarterly based upon a margin over the three
month London  Interbank Offer Rate ("LIBOR").  Margins range from 29 to 31 basis
points.  The debt has minimum  interest  rates ranging from 5.31% to 5.79%.  The
debt has maximum  rates  ranging  from 7.50% to 7.81%.  At December 31, 2001 and
2000, the interest rates on adjustable rate, long-term debt ranged from 5.31% to
5.79% and 6.94% to 6.96%,  respectively.  At  December  31,  2001 and 2000,  the
weighted  average rate on adjustable  rate,  long-term debt was 5.69% and 6.94%,
respectively.


                                       F-18
<PAGE>

            The contractual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
                                           December 31,
                                               2001                                           2000
                    --------------------------------------------------------------        ------------
                      Fixed         Adjustable       Fixed Rate
                       Rate            Rate          Covertible          Total               Total
                       ----         ----------       -----------         -----               -----
<S>                 <C>             <C>              <C>               <C>                <C>
Due in 2002         $ 1,000,000     $ 6,400,000      $          -      $ 7,400,000        $ 11,400,000
Due in 2003              88,000                        10,000,000       10,088,000
Due in 2004              88,000                                             88,000           5,000,000
Due in 2005              74,000                                             74,000          10,000,000
Due in 2006           7,000,000                                          7,000,000
Thereafter                    -               -        25,000,000       25,000,000          15,000,000
                    -----------     -----------      ------------     ------------        ------------
                    $ 8,250,000     $ 6,400,000      $ 35,000,000     $ 49,650,000        $ 41,400,000
                    ===========     ===========      ============     ============        ============
</TABLE>

               The Bank also has daily advances outstanding which are classified
as  short-term  debt.  These  advances are repayable at the Bank's option at any
time and reprice daily.  These advances  totaled  $1,000,000 and  $12,975,000 at
December 31, 2001 and 2000, respectively. Average rates at December 31, 2001 and
2000 on this short-term debt were 1.83% and 6.35%, respectively.

               Under  the  terms  of an  Agreement  for  Advances  and  Security
Agreement with Blanket Floating Lien (the  "Agreement"),  the Company  maintains
eligible  collateral  consisting of 1 - 4 unit residential first mortgage loans,
discounted at 75% of the unpaid principal balance, equal to 100% at December 31,
2000,  of its total  outstanding  long and  short  term  Federal  Home Loan Bank
advances.  This amount was  $65,169,000  at December 31,  2000.  At December 31,
2000,  the Bank also pledged its Federal Home Loan Bank stock of $2,961,300  and
has securities  with a carrying value of $50,646,000  eligible as collateral for
these advances.

               During 2001,  the Bank entered into an addendum to the  Agreement
that  expanded the types of eligible  collateral  under the Agreement to include
certain  commercial  real estate loans.  These loans are subject to  eligibility
rules, and collateral  values are discounted at 50% of the unpaid loan principal
balance.  In addition,  only 50% of total  collateral for Federal Home Loan Bank
advances may consist of commercial  real estate loans. At December 31, 2001, the
Bank had  eligible  collateral  in its  commercial  real estate and  residential
portfolios to borrow up to approximately  $78,000,000 from the Federal Home Loan
Bank.  In addition  the Bank has  pledged  its  Federal  Home Loan Bank stock of
$2,961,300  and  securities  with a carrying  value of $34,738,000 as additional
collateral for its advances.

               Other  short-term  debt  consists  of notes  payable  to the U.S.
Treasury,  which are Federal treasury tax and loan deposits accepted by the Bank
and  remitted on demand to the Federal  Reserve  Bank.  At December 31, 2001 and
2000, such borrowings  were $813,317 and $575,903,  respectively.  The Bank pays
interest on these  balances at a slight  discount to the federal funds rate. The
notes  are  secured  by  investment   securities   with  an  amortized  cost  of
approximately $786,700 and $912,535 at December 31, 2001 and 2000, respectively.

                                       F-19
<PAGE>

8.   INCOME TAXES

            Income tax was as follows:
<TABLE>
<CAPTION>
                                              2001             2000             1999
                                              ----             ----             ----
<S>                                        <C>             <C>                <C>
Current
  Federal                                  $1,409,350      $ 1,307,000        $ 973,000
  State                                       114,000           18,000          109,000
                                           ----------      -----------       ----------
                                            1,523,350        1,325,000        1,082,000
                                           ----------      -----------       ----------
Deferred
  Federal                                    (168,000)         (97,000)         (56,000)
  State                                       (37,000)         (21,000)         (12,000)
                                           ----------      -----------       ----------
                                             (205,000)        (118,000)         (68,000)
                                           ----------      -----------       ----------
Total Income Tax Expense                   $1,318,350      $ 1,207,000       $1,014,000
                                           ==========      ===========       ==========
</TABLE>

               Total income tax expense  differed  from the amounts  computed by
applying the federal  income tax rate of 34% to income  before income taxes as a
result of the following:
<TABLE>
<CAPTION>
                                                2001                    2000                     1999
                                        ----------------------  -----------------------  -----------------------
                                                    Percent of               Percent of               Percent of
                                                     Pre Tax                  Pre Tax                  Pre Tax
                                        Amount       Income       Amount      Income        Amount     Income
                                        ----------------------  -----------------------  -----------------------
<S>                                   <C>            <C>        <C>            <C>       <C>            <C>
Expected income tax expense at
  federal tax rate                    $1,293,321     34.0%      $1,205,000     34.0%     $1,077,000     34.0%
State taxes net of federal benefit        77,000      2.0%               -      0.0%         62,000      1.9%
Nondeductible expenses                     5,233      0.1%          14,000      0.4%         14,000      0.4%
Deduction for stock options exercised          -      0.0%               -      0.0%        (90,000)    -2.9%
Other                                    (57,204)    -1.4%         (12,000)    -0.3%        (49,000)    -1.4%
                                      ----------     ----       ----------     ----      ----------     ----
                                      $1,318,350     34.7%      $1,207,000     34.1%     $1,014,000     32.0%
                                      ==========     ====       ==========     ====      ==========     ====
</TABLE>

                                       F-20
<PAGE>

               The net deferred tax assets in the  accompanying  balance  sheets
include the following components:
<TABLE>
<CAPTION>
                                                           2001             2000
                                                           ----             ----
<S>                                                      <C>              <C>
Deferred tax assets:
  Deferred fees                                         $ 44,566          $ 48,073
  Allowance for loan losses                              768,525           577,486
  Deferred compensation                                  102,568            83,510
  Unrealized loss on investment
    securities available for sale                              -            52,000
                                                        --------          --------
                                                         915,659           761,069
                                                        --------          --------

Deferred tax liabilities:
  FHLB stock dividends                                   153,866           152,896
  Depreciation                                            98,328            97,708
  Unrealized gain on investment
    securities available for sale                        291,599                 -
                                                        --------          --------
                                                         543,793           250,604
                                                        --------          --------

                                                        $371,866          $510,465
                                                        ========          ========
</TABLE>

               Retained  earnings at December  31, 2001,  include  approximately
$1.2 million of bad debt deductions allowed for federal income tax purposes (the
"base year tax reserve") for which no deferred  income tax has been  recognized.
If, in the future,  this  portion of  retained  earnings is used for any purpose
other than to absorb bad debt losses,  it would  create  income for tax purposes
only and  income  taxes  would be  imposed  at the then  prevailing  rates.  The
unrecorded income tax liability on the above amount was  approximately  $458,000
at December 31, 2001.

               Prior to  January  1, 1996,  the Bank  computed  its tax bad debt
deduction  based upon the  percentage of taxable income method as defined by the
Internal  Revenue  Code.  The bad debt  deduction  allowable  under this  method
equaled 8% of taxable income determined without regard to the bad debt deduction
and with certain  adjustments.  The tax bad debt deduction differed from the bad
debt expense used for financial accounting purposes.

               In August 1996, the Small Business Job Protection Act (the "Act")
repealed the  percentage of taxable  income  method of accounting  for bad debts
effective for years beginning after December 31, 1995. The Act required the Bank
to change  its  method of  computing  reserves  for bad debts to the  experience
method. This method is available to banks with assets less than $500 million and
allows  the Bank to  maintain a tax  reserve  for bad debts and to take bad debt
deductions for reasonable  additions to the reserve. As a result of this change,
the Bank has to  recapture  into income a portion of its  existing  tax bad debt
reserve. This recapture occurs ratably over a six-taxable year period, beginning
with the 1998 tax year. For financial  reporting  purposes,  this recapture does
not result in additional tax expense as the Bank  adequately  provided  deferred
taxes in prior  years.  Furthermore,  this  change  does not require the Bank to
recapture its base year tax reserve.


                                       F-21
<PAGE>

9.   COMMITMENTS AND CONTINGENCIES

               The Bank is party to financial instruments with off-balance-sheet
risk in the  normal  course  of  business  to meet  the  financing  needs of its
borrowers.  These financial  instruments are commitments to extend credit. These
instruments may, but do not necessarily,  involve, to varying degrees,  elements
of credit  and  interest  rate risk in excess of the  amount  recognized  in the
balance   sheets.   The  Bank's   exposure  to  credit  loss  in  the  event  of
nonperformance by the other party to the financial  instrument is represented by
the  contractual  amount of those  instruments.  The Bank  uses the same  credit
policies in making commitments as it does for on-balance-sheet loans receivable.

               As of December 31, 2001 and 2000, in addition to the  undisbursed
portion  of  loans  receivable  of  approximately   $6,031,000  and  $5,032,000,
respectively, the Bank had outstanding loan commitments approximating $1,926,500
and $995,000, respectively.

               Standby  letters of credit  written are  conditional  commitments
issued by the Bank to guarantee the  performance of a customer to a third party.
These  guarantees  are  issued  primarily  to  support  construction   borrowing
arrangements.  The  credit  risk  involved  in  issuing  letters  of  credit  is
essentially the same as that involved in extending loan facilities to customers.
The Bank  holds  cash or a secured  interest  in real  estate as  collateral  to
support those  commitments  for which  collateral is deemed  necessary.  Standby
letters of credit outstanding  amounted to $5,698,000 and $6,256,000 at December
31, 2001 and 2000,  respectively.  In addition to the  commitments  noted above,
customers had approximately  $10,123,000 and $9,891,000 available under lines of
credit at December 31, 2001 and 2002, respectively.

10.  STOCK OPTION AND INCENTIVE PLAN

               The Company has a stock option and incentive  plan to attract and
retain  personnel  and provide  incentive to employees to promote the success of
the business.  At December 31, 2001, 61,081 shares of stock have been authorized
and are available for grants of options under this plan.  The exercise price for
options granted is set at the discretion of the Board,  but is not less than the
market value of the shares as of the date of grant. An option's  maximum term is
ten years and the options generally vest immediately upon issuance.

               The Company applies APB Opinion 25 and related Interpretations in
accounting for the stock option plan. Accordingly, no compensation cost has been
recognized.  Had  compensation  cost for the  Company's  stock  option plan been
determined  based upon fair values at the grant dates for awards  under the plan
consistent with the method  prescribed by SFAS No. 123, the Company's net income
and  earnings  per share  would  have  been  adjusted  to the pro forma  amounts
indicated below:
<TABLE>
<CAPTION>

                                                      2001             2000             1999
                                                      ----             ----             ----
<S>                          <C>                   <C>              <C>              <C>
Net Income                   As reported           $ 2,485,535      $ 2,336,119      $ 2,153,490
                             Pro forma               2,259,284        2,270,079        1,990,645

Basic Earnings Per Share     As reported                  3.24             2.98             2.75
                             Pro forma                    2.95             2.89             2.54

Diluted Earnings Per Share   As reported                  3.11             2.85             2.59
                             Pro forma                    2.83             2.76             2.39
</TABLE>


                                       F-22
<PAGE>
               For the  purpose of  computing  the pro forma  amounts  indicated
above, the fair value of each option on the date of grant is estimated using the
Black-Scholes   option   pricing  model  with  the  following   weighted-average
assumptions used for the grants:
<TABLE>
<CAPTION>
                                           2001         2000         1999
                                           ----         ----         ----
<S>                                        <C>          <C>          <C>
Dividend Yield                             1.30%        0.75%        0.75%
Expected volatility                       15.00%       15.00%       15.00%
Risk - free interest rate                  4.91%        5.85%        5.72%
Expected lives (in years)                   10           10           10
Weighted average fair value               $11.06       $12.28       $11.51
</TABLE>

The following tables summarize activity in the plan:
<TABLE>
<CAPTION>
                                             2001                   2000                    1999
                                       -------------------    -----------------      -------------------
                                                 Weighted              Weighted                 Weighted
                                                 Average               Average                  Average
                                                 Exercise              Exercise                 Exercise
                                       Shares     Price       Shares     Price       Shares      Price
                                       ------    --------     ------   --------      ------     --------
<S>                                    <C>        <C>         <C>       <C>          <C>        <C>
Outstanding at beginning of year       91,036     $16.89      91,184    $12.61       101,818    $12.61
Granted                                20,448      26.57       9,179     26.66        14,143     25.24
Exercised                              (7,105)     10.28      (7,790)    14.61       (24,369)     7.61
Forfeitures                            (4,700)     24.41      (1,537)    25.25          (408)    26.60
                                       ------                 ------                 -------
Outstanding at end of year             99,679     $18.99      91,036    $16.89        91,184    $15.85
                                       ======     ======      ======    ======       =======    ======
</TABLE>
<TABLE>
<CAPTION>
                                 Options Outstanding                               Options Exercisable
                         -------------------------------------             -------------------------------------
                                                 Weighted                                         Weighted
                            Number              Remaining                     Number                Average
                         Outstanding           Contractual                 Exercisable              Exercise
                           12/31/01                 Life                      12/31/01                Price
                         ------------          ---------------             -------------          --------------
                              <S>                  <C>                           <C>                  <C>
                              43,174               4 years                       43,174               $10.28
                                 775               6 years                          775                21.51
                              21,628               7 years                       21,628                24.31
                               8,051               8 years                        8,051                26.60
                               9,029               9 years                        9,029                26.70
                              17,022              10 years                       17,022                26.55
</TABLE>

11.  EMPLOYEE BENEFIT PLANS

               The Bank has an Employee Stock Ownership Plan (ESOP) which covers
substantially all of the Bank's employees. The ESOP acquires stock of the Bank's
parent corporation,  Tri-County Financial Corporation.  The Company accounts for
its ESOP in  accordance  with AICPA  Statement  of Position  93-6.  Accordingly,
unencumbered  shares held by the ESOP are treated as  outstanding  in

                                       F-23
<PAGE>

computing  earnings  per  share.  Shares  issued  to the  ESOP  but  pledged  as
collateral  for loans  obtained  to provide  funds to acquire the shares are not
treated as outstanding in computing earnings per share. Dividends on ESOP shares
are  recorded as a reduction of retained  earnings.  The ESOP may acquire in the
open market up to 195,700  shares.  At December 31,  2001,  the Plan owns 53,731
shares.

               The Company also has a 401(k) plan. The Bank matches a portion of
the employee  contributions.  This ratio is determined  annually by the Board of
Directors. Currently one-half of an employee's first 6% deferral is matched. All
employees who have  completed one year of service and have reached the age of 21
are covered under this defined  contribution plan.  Contributions are determined
at the discretion of management and the Board of Directors.  For the years ended
December 31, 2001,  2000, and 1999, the Company charged  $93,000,  $90,000,  and
$342,000, against earnings to fund the Plans.

12.  DIVIDENDS

               On January 22, 2002,  the Board of Directors  declared a $.50 per
share cash dividend to be paid on April 8, 2002 to holders of record as of March
25, 2002. On January 31, 2001, the Board of Directors  declared a $.40 per share
cash dividend which was  distributed on April 9, 2001 to holders of record as of
March 26, 2001. On February 3, 2000, the Board of Directors  declared a $.30 per
share cash dividend which was distributed April 14, 2000 to holders of record as
of March 14, 2000.

13.  REGULATORY MATTERS

               The  Company  and the  Bank are  subject  to  various  regulatory
capital  requirements  administered  by the federal and state banking  agencies.
Failure to meet minimum capital  requirements can initiate certain mandatory and
possible  additional  discretionary  actions by regulators  that, if undertaken,
could have a direct  material  effect on the Company's and the Bank's  financial
statements.  Under capital adequacy guidelines and the regulatory  framework for
prompt corrective  action,  the Bank must meet specific capital  guidelines that
involve  quantitative  measures of the Bank's  assets,  liabilities  and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank's  capital  amounts  and  classification  are also  subject to  qualitative
judgments  by the  regulators  about  components,  risk  weightings,  and  other
factors.

               Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts and ratios
(set forth in the table  below) of tangible  and core capital (as defined in the
regulations)  to total adjusted assets (as defined),  and of risk-based  capital
(as defined) to risk-weighted assets (as defined).  Management  believes,  as of
December  31,  2001,  that the Company  and the Bank meet all  capital  adequacy
requirements to which they are subject.

               As of December 31, 2001,  the most recent  notification  from the
Federal Reserve  categorized the Bank as  well-capitalized  under the regulatory
framework for prompt corrective  action. To be categorized as  well-capitalized,
the Bank must maintain minimum total risk-based,  Tier 1 risk-based,  and Tier 1
leverage  ratios as set forth in the table.  There are no  conditions  or events
since that notification  that management  believes have changed the Company's or
the Bank's category.

                                       F-24
<PAGE>


               The Company's and the Bank's  actual  capital  amounts and ratios
for  2001 and 2000  are  presented  in the  tables  below:  (dollar  amounts  in
thousands)
<TABLE>
<CAPTION>
                                                                                                 To be Considered
                                                                                                  Well Capitalized
                                                                         Required for              Under Prompt
                                                                      Capital Adequacy           Corrective Action
                                               Actual                     Purposes                   Provisions
                                      ----------------------         -------------------         ---------------------
                                        Amount        Ratio           Amount      Ratio           Amount       Ratio
                                      ---------      -------         -------      ------         --------     --------
<S>                                      <C>          <C>            <C>            <C>           <C>           <C>
At December 31, 2001:
 Total capital (to risk-
 weighted assets):
     The Company                         $27,314      14.08%         $15,511        8.0%
     The Bank                             25,799      13.26%          15,570        8.0%          $19,462       10.0%

 Tier 1 capital (to risk-
 weighted assets):
     The Company                          24,841      12.81%           7,756        4.0%
     The Bank                             23,517      12.08%           7,785        4.0%           11,677        6.0%

 Tier 1 capital (to
 average assets):
     The Company                          24,841       9.64%          10,311        4.0%
     The Bank                             23,517       9.46%           9,944        4.0%           12,430        5.0%

At December 31, 2000:
 Total capital (to risk-
 weighted assets):
     The Company                          25,475      13.53%         $15,069        8.0%
     The Bank                             25,227      13.40%          15,069        8.0%           18,837       10.0%

 Tier 1 capital (to risk-
 weighted assets):
     The Company                          23,545      12.50%           7,535        4.0%
     The Bank                             23,182      12.31%           7,535        4.0%           11,302        6.0%

 Tier 1 capital (to
 average assets):
     The Company                          23,545       9.61%           9,803        4.0%
     The Bank                             23,182       9.46%           9,803        4.0%           12,254        5.0%
</TABLE>

                                       F-25
<PAGE>

14.  EARNINGS PER SHARE

               The  calculations of basic and diluted  earnings per share are as
follows:
<TABLE>
<CAPTION>
                                                    2001            2000           1999
                                                 ----------      ----------     ----------
<S>                                              <C>             <C>            <C>
Basic earnings per share
  Net income                                     $2,485,535      $2,336,196     $2,153,490
  Average common shares outstanding                 766,927         784,605        782,950
  Net income per common share - basic            $     3.24      $     2.98     $     2.75

Diluted earnings per share
  Net income                                     $2,485,535      $2,336,196     $2,153,490
  Average common shares outstanding                 766,927         784,605        782,950
  Stock option adjustment                            31,860          36,534         49,333
  Average common shares outstanding - diluted       798,787         821,139        832,283
  Net income per common share - diluted          $     3.11      $     2.85     $     2.59
</TABLE>

15.  FAIR VALUE OF FINANCIAL INSTRUMENTS

               The  estimated  fair value  amounts have been  determined  by the
Company  using  available   market   information   and   appropriate   valuation
methodologies.   However,  considerable  judgment  is  necessarily  required  to
interpret market data to develop the estimates of fair value.  Accordingly,  the
estimates  presented  herein are not  necessarily  indicative of the amounts the
Company could realize in a current market exchange.  The use of different market
assumptions  and/or  estimation  methodologies may have a material effect on the
estimated  fair value  amounts.  Therefore,  any aggregate  unrealized  gains or
losses should not be interpreted as a forecast of future earnings or cash flows.
Furthermore,  the  fair  values  disclosed  should  not  be  interpreted  as the
aggregate current value of the Company.
<TABLE>
<CAPTION>
                                                  December 31, 2001                December 31, 2000
                                               -------------------------        ---------------------------
                                                              Estimated                         Estimated
                                                 Carrying       Fair             Carrying         Fair
                                                  Amount        Value             Amount          Value
                                                  ------      ---------          --------       ----------
<S>                                              <C>         <C>                <C>            <C>
Assets:
  Cash and cash equivalents                    $    693,439  $    693,439       $    645,817   $    645,817
  Interest bearing deposits with banks            7,678,158     7,678,158          5,975,314      5,975,314
  Investment securities and stock in FHLB
    and FRB                                      46,998,646    46,998,146         61,610,913     61,610,913
  Loans receivable, net                         193,450,011   199,325,377        174,795,647    175,551,335
  Loans held for sale                             2,354,315     2,354,315            355,000        355,000

Liabilities:
  Savings, NOW, and money market accounts       112,755,772   112,755,862         96,251,723     96,251,723
  Time certificates                              70,360,762    71,827,020         71,199,037     71,209,125
  Long-term debt and other borrowed funds        50,463,317    52,340,500         54,950,903     55,187,033
</TABLE>


                                       F-26
<PAGE>

               At December 31, 2001 and 2000, the Company had  outstanding  loan
commitments  and standby  letters of credit of $7.6  million  and $7.3  million,
respectively.  Based on the short-term lives of these  instruments,  the Company
does not believe that the fair value of these instruments differs  significantly
from their carrying values.

          Valuation Methodology
          ---------------------

               Cash and Cash  Equivalents - For cash and cash  equivalents,  the
carrying amount is a reasonable estimate of fair value.

               Investment  Securities  - Fair values are based on quoted  market
prices or dealer quotes.  If a quoted market price is not available,  fair value
is estimated using quoted market prices for similar securities.

               Mortgage-Backed  Securities  - Fair  values  are  based on quoted
market prices or dealer quotes. If a quoted market price is not available,  fair
value is estimated using quoted market prices for similar securities.

               Loans  Receivable  and  Loans  Held  for  Sale  - For  conforming
residential  first-mortgage  loans,  the  market  price for loans  with  similar
coupons and maturities was used. For nonconforming loans with maturities similar
to conforming  loans,  the coupon was adjusted for credit risk.  Loans which did
not have quoted market prices were priced using the discounted cash flow method.
The discount rate used was the rate currently offered on similar products. Loans
priced using the discounted cash flow method included  residential  construction
loans,  commercial  real estate loans,  and consumer  loans.  The estimated fair
value  of  loans  held for  sale is  based  on the  terms  of the  related  sale
commitments.

               Deposits - The fair value of checking accounts,  saving accounts,
and money  market  accounts  was the amount  payable on demand at the  reporting
date.

               Time  Certificates  - The fair  value  was  determined  using the
discounted  cash flow method.  The discount rate was equal to the rate currently
offered on similar products.

               Long-Term Debt and Other Borrowed Funds - These were valued using
the  discounted  cash  flow  method.  The  discount  rate was  equal to the rate
currently offered on similar borrowings.

               The fair value estimates  presented herein are based on pertinent
information  available to management as of December 31, 2001 and 2000.  Although
management  is not aware of any  factors  that  would  significantly  affect the
estimated  fair  value  amounts,  such  amounts  have not  been  comprehensively
revalued  for  purposes  of these  financial  statements  since  that  date and,
therefore,  current  estimates of fair value may differ  significantly  from the
amount presented herein.


                                       F-27
<PAGE>

16.  CONDENSED FINANCIAL STATEMENTS - PARENT COMPANY ONLY

               Financial  information  pertaining  only to Tri-County  Financial
Corporation is as follows:

      Balance Sheets:

<TABLE>
<CAPTION>
                                      ASSETS
                                                              2001          2000
                                                              ----          ----
<S>                                                        <C>          <C>
Cash - noninterest-bearing                                $    25,000   $   204,937
Cash - interest-bearing                                       925,521       280,000
Other assets                                                  691,208        79,645
Investment securities available for sale                      111,582        34,679
Investment in wholly owned subsidiary                      24,073,273    23,067,087
                                                          -----------   -----------

    TOTAL ASSETS                                          $25,826,584   $23,666,348
                                                          ===========   ===========

Current liabilities                                       $   240,126   $   236,526

Stockholders' equity
  Common stock                                                  7,568         7,777
  Surplus                                                   7,545,590     7,500,865
  Retained earnings                                        17,678,367    16,175,708
  Unearned ESOP shares                                       (200,580)     (139,599)
  Accumulated other comprehensive income                      555,513      (114,929)
                                                          -----------   -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
  EQUITY                                                  $25,826,584   $23,666,348
                                                          ===========   ===========
</TABLE>

   Condensed Statements of Income:
<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                                     ------------------------------------
                                                        2001         2000         1999
                                                        ----         ----         ----
<S>                                                  <C>          <C>          <C>
Dividends from subsidiary                            $2,250,000   $  500,000   $1,000,000
Interest income                                          26,929       27,510       42,675
Loss on sale of investment securities                         -            -         (605)
Miscellaneous expenses                                 (167,787)     (90,391)     (97,844)
                                                     ----------   ----------   ----------

Income before income taxes and equity in              2,109,142      437,119      944,226
  undistributed net income of subsidiary
Federal and state income tax benefit                     40,650            -       21,000

Equity in undistributed net income of subsidiary        335,743    1,899,077    1,188,264
                                                     ----------   ----------   ----------
NET INCOME                                           $2,485,535   $2,336,196   $2,153,490
                                                     ==========   ==========   ==========
</TABLE>
                                       F-28
<PAGE>
Condensed Statements Cash Flows:
<TABLE>
<CAPTION>
                                                                   2001            2000             1999
                                                                   ----            ----             ----
<S>                                                           <C>              <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                    $ 2,485,535      $ 2,336,196       $ 2,153,490
Adjustments to reconcile net income to net cash
  provided by operating activities:
  Equity in undistributed earnings of subsidiary                 (335,743)      (1,899,077)       (1,188,264)
  Loss on sale of investment securities                                 -                -               605
  Increase in current assets                                     (611,564)         (39,398)          (28,513)
  Increase in current liabilities                                   3,600                -           186,893
                                                              -----------      -----------       -----------
Net cash provided by operating activities                       1,541,828          397,721         1,124,211
                                                              -----------      -----------       -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Net (increase) decrease in interest-bearing deposits           (645,521)         439,068          (677,177)
  Purchase of investment securities available for sale            (76,903)          (6,677)           (3,637)
  Maturity or redemption of investment securities
    available for sale                                                  -                -           200,000
                                                              -----------      -----------       -----------
    Net cash provided (used) by investing activities             (722,424)        (432,391)         (480,814)
                                                              -----------      -----------       -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Dividends paid                                                 (309,204)        (236,595)         (157,034)
  Exercise of stock options                                        31,817           53,676           126,160
  Net change in ESOP loan                                         (48,034)          36,984            41,734
  Redemption of common stock                                     (673,920)        (479,391)         (657,150)
                                                              -----------      -----------       -----------
    Net cash used in financing activities                        (999,341)        (625,326)         (646,290)
                                                              -----------      -----------       -----------
INCREASE (DECREASE) IN CASH                                      (179,937)         204,786            (2,893)

CASH AT BEGINNING OF YEAR                                         204,937              151             3,044
                                                              -----------      -----------       -----------
CASH AT END OF YEAR                                           $    25,000      $   204,937       $       151
                                                              ===========      ===========       ===========
</TABLE>

                                       F-29
<PAGE>

17.  QUARTERLY FINANCIAL RESULTS (UNAUDITED)

               A summary of selected  consolidated  quarterly financial data for
the two years ended December 31, 2001 is reported as follows:
<TABLE>
<CAPTION>
                                                                        2001
                                            ---------------------------------------------------------
                                              Fourth          Third         Second         First
                                              Quarter         Quarter       Quarter        Quarter
                                              -------         -------       -------        -------
<S>                                        <C>             <C>            <C>             <C>
Interest and dividend income               $ 4,326,809     $ 4,630,360    $ 4,649,286     $ 4,908,221
Interest expenses                            1,821,087       2,132,804      2,316,701       2,487,219
                                           -----------     -----------    -----------     -----------
Net interest income                          2,505,722       2,497,556      2,332,585       2,421,002
Provision for loan loss                         90,000          90,000         90,000          90,000
                                           -----------     -----------    -----------     -----------
Net interest income after provision
for loan loss                                2,415,722       2,407,556      2,242,585       2,331,002
Noninterest income                             355,728         344,406        353,858         347,528
Noninterest expense                          1,840,743       1,862,904      1,609,104       1,681,749

Income before income taxes                     930,707         889,058        987,339         996,781
Provision for income taxes                     312,650         322,000        335,700         348,000
Net Income                                     618,057         567,058        651,639         648,781

Earnings per common share:

Basic                                      $      0.83     $      0.74    $      0.84     $      0.83
                                           ===========     ===========    ===========     ===========
Diluted                                    $      0.79     $      0.71    $      0.81     $      0.80
                                           ===========     ===========    ===========     ===========
<CAPTION>
                                                                       2000
                                           ---------------------------------------------------------
                                             Fourth          Third          Second          First
                                             Quarter         Quarter        Quarter         Quarter
                                             -------         -------        -------         -------
<S>                                        <C>            <C>             <C>            <C>
Interest and dividend income               $ 4,829,400    $ 4,637,439     $ 4,487,475    $ 4,335,248
Interest expenses                            2,619,502      2,470,503       2,289,364      2,048,121
                                           -----------    -----------     -----------    -----------
Net interest income                          2,209,898      2,166,936       2,198,111      2,287,127
Provision for loan loss                         90,000         90,000          90,000         90,000
                                           -----------    -----------     -----------    -----------
Net interest income after provision
for loan loss                                2,119,898      2,076,936       2,108,111      2,197,127
Noninterest income                             470,936        300,658         309,275        292,119
Noninterest expense                          1,580,431      1,553,978       1,631,991      1,565,464

Income before income taxes                   1,010,403        823,616         785,395        923,782
Provision for income taxes                     352,000        279,000         276,000        300,000
Net Income                                     658,403        544,616         509,395        623,782

Earnings per common share:

Basic                                           $ 0.85         $ 0.69     $      0.65    $      0.79
                                           ===========    ===========     ===========    ===========
Diluted                                         $ 0.82         $ 0.66     $      0.62    $      0.75
                                           ===========    ===========     ===========    ===========
</TABLE>


                                       F-30

<PAGE>


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                     TRI-COUNTY FINANCIAL CORPORATION


Date: March 27, 2002                 By:/s/ Michael L. Middleton
                                        ----------------------------------------
                                        Michael L. Middleton
                                        President and Chief Executive Officer
                                        (Duly Authorized Representative)


     Pursuant to the  requirement of the Securities  Exchange Act of 1934,  this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.


By:  /s/ Michael L. Middleton                By:/s/ William J. Pasenelli
     ---------------------------------          --------------------------------
     Michael L. Middleton                       William J. Pasenelli
     (Director, President and Chief             (Chief Financial and Accounting
     Executive Officer)                          Officer)

Date: March 27, 2002                         Date: March 27, 2002


By:  /s/ C. Marie Brown                      By:/s/ Herbert N. Redmond, Jr.
     ---------------------------------          --------------------------------
     C. Marie Brown                             Herbert N. Redmond, Jr.
     (Director and Chief Operating Officer)     (Director)

Date: March 27, 2002                         Date: March 27, 2002


By:  /s/ H. Beaman Smith                     By:/s/ W. Edelin Gough, Jr.
     ---------------------------------          --------------------------------
     H. Beaman Smith                            W. Edelen Gough, Jr.
     (Director and Secretary/Treasurer)         (Director)

Date: March 27, 2002                            Date: March 27, 2002


By:  /s/ Louis P. Jenkins, Jr.               By:/s/ Catherine A. Askey
     ---------------------------------          --------------------------------
     Louis P. Jenkins, Jr.                      Catherine A. Askey
     (Director)                                 (Director)

Date: March 27, 2002                         Date: March 27, 2002